Former ambassador George Bush, calling himself an all-but-announced candidate for the Republican presidential nomination, yesterday challenged fellow Texas John B. Connally's prescription for fighting inflation.

Without naming Connally who declared his own presidential candidacy on Wednesday, Bush opposed the former Texas governor's call for a one-year cut of 5 percent in all federal spending and a constitutional amendment to require a balanced budget in future years.

Bush told reporters he opposed a cutback in defense spending and feared a balanced-budget amendment would actually force tax increases, rather than bring tax cuts.

But he echoed Connally's criticism of President Carter's "inconsistency" in economic policy leadership and his "neglect" of energy production incentives.

Bush was accompanied to the press breakfast by James E. Baker III, the Houston attorney who ran President Ford's 1976 campaign and will head the Bush drive in 1980.

Bush said that "legally," he would become a condidate in 10 days, as a result of Baker's having filed papers with the Federal Election Commission, but that his formal announcement would be delayed "a few months."

Unlike Connally, who told reporters Thursday he would continue with his Houston law firm and decline to file any financial disclosure statement until he is nominated, Bush said he was "severing all my ties... to concentrate on this one target," and would "fully disclose my assets and liabilities and not worth wnen I become a candidate." Asked about making public his income tax returns, he said, "I am not intimidated by that, but I want to think it through."

Bush said he planned to run in most, if not all, the early primaries, "no matter who else is there." Having lost his last bid for public office -- a 1970 Texas Senate race -- he said, "I have to win and win early."

While opposing a constitutional amendment for a balanced budget, Bush said he would look sympathetically on either legislation or a constitutional amendment to cap federal spending, but was not certain what form that would take.

As he has done previously, he criticized Carter's decision to cut off ties with Taiwan as part of the "normalization" with China and said he viewed the strategic arms limitation treaty with the Soviet Union with "reserve and concern." Defense spending in the United States, he said, must rise -- not fall -- to counter the Soviet buildup.

Bush told reporters he was "very uncomfortable" being described as a "moderate Republican," and preferred to be called a "conservative" if he was given any label.