David Cameron insisted today that the Government will stick with its economic strategy despite warnings that the economy is set to shrink by 0.4% this year.

The Prime Minister admitted that Britain faces a "very slow healing process" after the International Monetary Fund downgraded its previous forecast of 0.2% growth.

But he dismissed calls to change course to boost growth and adopt a "Plan B" and vowed to make sure "Plan A" was "firing on all cylinders".

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Mr Cameron said: "The IMF also say we shouldn't abandon our plans of making reductions in government spending and also, regrettably in some cases, putting up some taxes to get on top of our debt and our deficit.

"So it's not Plan B that we need. What we are doing is making sure that every part of Plan A is firing on all cylinders."

He added: "These are difficult times but the worst thing to do when you have got a problem of too much spending, too much borrowing and too much debts is to do what Labour say and have more borrowing and more debt. You can't borrow your way out of a debt crisis."

Earlier, the IMF said Britain should defer spending cuts planned for next year if growth turns out to be much weaker than forecast

The IMF said Britain's deficit-cutting plans were already behind forecast, but that Chancellor George Osborne should be prepared to slow them further in the short term if other measures failed to boost demand.

Its budget assessment came hours after it sharply downgraded Britain's growth outlook, predicting the economy would shrink 0.4% this year, before growing by a tepid 1.1% in 2013.

The reports will make uncomfortable reading for Mr Osborne, who will unveil updated growth and budget forecasts on December 5. Many economists already believe he will struggle to meet his goals of eliminating the structural budget deficit within five years, and putting net debt as a share of GDP on a downward path by 2015.

The IMF said a first line of defence against weaker growth would be for the Bank of England to loosen monetary policy and for the government to allow total unemployment benefit payments to rise if joblessness increased.

But if that failed to spur growth, Mr Osborne should postpone some of the cuts planned under his flagship austerity programme to future years, it added.

"If growth should fall significantly below current ... projections, countries with room for manoeuvre should smooth their planned adjustment over 2013 and beyond. This includes ... the United Kingdom," the IMF said. It gave a similar message in May, when it forecast 2.0% growth for 2013.

Britain's economy entered recession late last year, and the IMF said it faced headwinds from government austerity and private-sector indebtedness.

But Mr Osborne rejected any change to his fiscal policy in a speech yesterday at the Conservative Party's annual conference.

"Our critics would gamble everything ... on the dubious idea that a few billion more of spending would dramatically improve the fortunes of the trillion-and-a-half pound British economy," he told fellow party members, vowing more welfare cuts.