Britain's Conservative government said Wednesday it would meet a NATO target of spending two percent of GDP on defence until 2020, a move immediately welcomed by the United States.

The defence budget has been slashed since 2010 as part of Prime Minister David Cameron's austerity drive, prompting concerns that NATO's second strongest power will no longer be able to pull its weight in the military alliance.

The armed forces have been reduced by 18,000 personnel in five years and only last month, finance minister George Osborne announced further defence cuts of 500 million pounds (695 million euros, $768 million).

But in his first budget statement since the general election in May, Osborne committed to meet the NATO pledge "not just this year, but every year of this decade".

He told the House of Commons he would increase defence spending every year in real terms, and set up a new "security fund" of 1.5 billion pounds a year by 2020.

The news was greeted with loud cheers from Conservative lawmakers, many of whom had despaired at the government's refusal to commit to the NATO target beyond next year.

Officials said they were waiting for the outcome of a strategic defence and security review, which is due to be completed later this year.

The United States, which itself announced on Tuesday that it would be cutting 40,000 army jobs over the next two years, was quick to welcome Britain's move.

"America welcomes Her Majesty's government's commitment to two percent defense spending, proving again the indispensability of the UK to global security," US ambassador to Britain Matthew Barzun said on Twitter.

However, there are questions over exactly how Britain will calculate the two percent target, after Defence Secretary Michael Fallon indicated last month that it could include some money spent on development aid.

Crispin Blunt, the Conservative chairman of the House of Commons foreign affairs committee, also warned that the target looked set to include the 2.5 billion pounds spent each year on the intelligence agencies.

"The pledge to meet the NATO target of two percent of GDP on defence is not quite as profound as it appears," he said, adding that his committee and others would examine the detail of the government's plans in the coming months.