Barack Obama has announced a deal with Republican and Democratic Congressional leaders to end the debt crisis in the US.

The deal will raise the limit on US borrowing and cut US spending by an initial $1 trillion – the lowest government spending since the 1950s.

But in an address from the White House, Obama said: “We are not done yet.”

The vote will go to the Senate, which is almost certain to back the decision, and then to the House of Representatives, whose support is not guaranteed.

If the deal is approved, the country’s debt limit would be raised to $2.2 trillion and government spending would first be cut by $1 trillion. Further drastic cuts would be made over the course of the next decade.

Leaders hope this will protect the US credit rating, reassure investors and reverse Wall Street losses.

Obama, along with many financial experts and economists, predicted global chaos and plunging stock markets if no deal was reached by tomorrow (Tuesday 2 August), saying that America faced defaulting on its debts for the first time in history.

After weeks of negotiating, Obama said: “This process has been messy and taken too long.”

Harry Reid, the Democratic leader in the Senate said he was “cautiously optimistic” that a deal would be reached. The Republican leader in the Senate, Mitch McConnell agreed.

McConnell said: “I think I can say with a high degree of confidence that there is now a framework to review that will ensure significant cuts in Washington spending.

“And we can assure the American people tonight that the United States of America will not for the first time in our history default on its obligations.”

No cuts are proposed for the Social Security pension system or Medicare, the federal programme providing health care payments to the elderly. Taxes are also unlikely to rise.

Areas like the Park Service, Internal Revenue Service and Labour Department could see cuts.

The deal has sparked criticism from the left of the Democratic party due to cuts. It has also angered left-leaning grass roots organisation MoveOn, who described the proposed measures as “grotesquely immoral”.