The Chancellor, George Osborne flies back from the World Economic Forum in Davos to face tough questions from MPs of all sides in parliament on Tuesday.
He will take Treasury questions in the Commons on Tuesday and he will face an onslaught from Labour after GDP figures released on Friday showed that the economy shrank by 0.3 per cent in the final quarter of 2012.
Labour will follow up on the criticism directed at him by the IMF and Jim O'Neill from Goldman Sachs that he needs to change tact and focus more on growth than austerity to get the UK economy moving and to avoid a triple-dip recession.
Mr Osborne has rejected a call from the IMF’s Chief Economist Olivier Blanchard to ease up on austerity measures in his next budget in March.
Mr Osborne said that the the benefits and credibility with the financial markets that Britain has built up as a result of the coalitions spending cuts and tax rises were "hard won and easily lost and that it would be "a huge mistake to put that at risk".
"From the beginning we have always emphasised that fiscal consolidation should be slow and steady," he added.
Mr Blanchard said yesterday as the IMF unveiled its latest forecast for the global economy that “slower fiscal consolidation may well be appropriate” for the UK in order to encourage elusive growth.
However, speaking at the Davos World Economic Forum, Mr Osborne said that by focusing on cutting the deficit, it had allowed him to borrow money from the markets at the lowest rate "perhaps of any Chancellor before me".
Mr Osborne added, "I don't think it is right to abandon a credible deficit plan. Credibility is very hard won and easily lost and I think it would be a huge mistake to put that at risk.
He added: "It is credible, it is flexible, and we have already exercised that flexibility," he said referring to his Autumn Statement when he announced that the austerity programme would be extended to last until 2017-18.
The IMF has long argued that the UK needs to focus more on growth to help reduce the deficit rather than just reducing the deficit through spending cuts and tax increases.
Mr Blanchard said that as the recovery has been muted at best, now is the time for a change of tact.
Mr Blanchard told BBC Radio 4’s Today programme that Mr Osborne should use the forthcoming budget to present a different set of options for the UK economy.
He said: “We said if things look bad at the beginning of 2013 – which they do – then there should be some reassessment of fiscal policy. You have a Budget coming, and I think this would be a good time to actually take stock and see whether some adjustments should now be made.
The IMF cut its growth forecast for the UK economy for 2013 from 1.1 per cent to 1.0 per cent and for 2014 from 2.0 per cent to 1.9 per cent. However, many other western economies suffered similar or even bigger cuts to their forecasted growth.
The first estimate of GDP figures for the final quarter of 2012 will be published by the Office for National Statistics (ONS) tomorrow and they are expected to show that the UK economy contracted by 0.2 per cent, which would mean there had been no growth in the UK economy for the whole of 2012.
If the figures are confirmed then it could put another central part of the government’s economic policy at risk; that of retaining the UK’s AAA rating, a prize that Mr Osborne has put enormous cache on and a status that allows the UK to borrow money at the low rates mentioned by Mr Osborne in his retort to Mr Blanchard’s recommendation.
Mr Blanchard’s comments drew support from former Bank of England rate-setter Adam Posen who said: “Professor Blanchard is right and he has the research to back it up.”
Ed Balls MP, Labour’s Shadow Chancellor, said: “David Cameron and George Osborne must finally heed the IMF’s advice. They have repeatedly warned that a change of course would be needed in Britain if the economy turns out worse than expected. After two and a half years of flatlining and a double-dip recession the IMF is now clearly losing patience.
“The IMF has said such a plan B should include policies Labour has long called for – including temporary tax cuts, such as a VAT reduction, and bringing forward long-term infrastructure investment.
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