UK's Osborne should rejig spending; jury out on austerity -Reuters poll

* Osborne should do more to boost investment -economists

* Respondents split on whether he should relax austerity

LONDON, March 18 (Reuters) - British finance minister George Osborne should do more to boost investment in Wednesday's budget, say economists polled by Reuters, although they were split on whether he ought to borrow more to revive the economy.

Osborne is struggling to defend an austerity policy that after three years has delivered almost no growth and slower than planned progress in cutting Britain's budget deficit.

He and Prime Minister David Cameron have ruled out any change of course.

Most of the two dozen market economists polled over the past week said Osborne should do more in the budget to spur economic growth. But there was no consensus on whether the government should borrow more to achieve that.

On whether Osborne should relax his drive for austerity to help growth, which would imply more borrowing, economists were split: 13 against and 11 in favour.

A firm majority of 18 out of 23 said he should rejig existing plans and cut current spending to divert more funds into capital spending. The other five disagreed.

"It's not just reducing the deficit that's Osborne's job. It's getting the economy back onto a sustainable recovery footing," said Philip Shaw, chief economist at Investec in London.

"We would argue messing with the fiscal stance is not the right way of achieving that. Therefore 'Plan A' is in our mind the correct path," said Shaw, noting Britain still has one of the largest budget deficits in the European Union.

He thinks a better approach would provide much more credit to small- and medium-sized businesses that account for around half of the UK's private economy.

Those who think Osborne should relax his austerity push say the economy's stagnation over the last few years is proof enough that a change in tack is needed.

"The weakness of the economy requires some sort of fiscal loosening, especially at a point where monetary policy doesn't seem to be particularly effective," said Vicky Redwood, chief UK economist at Capital Economics.

"The Chancellor was right to bring in the austerity plans in 2010 when he did, and that reassured the financial markets that the UK was committed to reducing the deficit. But I think the main risk has shifted to whether the economy can start to recover again."

Redwood argues a rise in borrowing to fund stimulus could fully pay for itself in tax revenues from a growing economy.

That view is shared by Britain's Labour opposition, and Keynesian economists like Nobel Prize-winner Paul Krugman. The International Monetary Fund, one of the biggest proponents of austerity, now says cost-cutting may hurt economic growth more than it first thought.

A CAPITAL IDEA

There was consensus that Osborne should allow more capital spending - funding infrastructure projects with long-term economic benefits - at the expense of current spending, which covers regular outgoings on everything from public sector salaries to welfare.

Deputy Prime Minister Nick Clegg, who leads the Liberal Democrats as the junior partner in the coalition, said in January the government made a mistake in cutting capital spending when it came to power.

Most economists expect Britain will narrowly escape its third recession in four years this quarter, but few see anything other than anaemic growth well into 2014.

Economists in the latest poll expect the government's net borrowing requirement will rise next year, excluding costs of its bank bailouts and the absorption of pensions from the Royal Mail, but including transfer of gilt coupons from the Bank of England's asset purchases.

They put that figure at a median 105 billion pounds ($159 billion) for the 2013-14 fiscal year, compared with their estimate of 95 billion pounds for 2012-13.

In December, Osborne targeted public sector net borrowing in 2013-14, excluding financial interventions, at 99.3 billion pounds.

Even so, Britain will sell fewer government bonds in its coming fiscal year, as the cash transfers from the Bank of England and a bigger stock of short-term debt mask higher borrowing needs, according to a separate Reuters survey of primary dealers.

Britain's monthly government borrowing figures through 2012 routinely overshot forecasts, thwarting efforts to cut the deficit.

($1 = 0.6609 British pounds)

(Editing by Ruth Pitchford)