THE world's economy has entered a "dangerous new phase" as fears spread that the UK and US are heading for a "lost decade" of growth, the International Monetary Fund has said.

In a bleak warning, the IMF slashed its financial forecasts for the UK, America and the eurozone as it predicted little or no upturn for years to come.

All three economies could fall back into a double-dip recession, the organisation’s half-year report said.

In a significant blow to George Osborne, the IMF also warned the Tory Chancellor might have to slow his austerity drive if the situation deteriorated.

Last night there were reports that the Coalition was already considering ploughing an extra £5 billion into transport and housing projects in a bid to stimulate growth.

The IMF report found that, overall, the prospects for global economic recovery had worsened dramatically in recent months. When it does come growth will be “weak and bumpy”, the organisation warned.

It said the UK and Germany should “consider delaying some of their planned adjustment” to spending if economic activity was to “undershoot current expectations”.

The warning came as Mark Joiner, executive director of finance at Clydesdale Bank owner National Australia Bank, declared the UK economy was expected to be “on its knees for 10 years or so”.

His comments follow expert warnings that the UK could be heading for stagflation, the dreaded combination of low growth and high inflation that crippled the Japanese economy throughout the 1990s.

The IMF report also warned its forecasts depended on a solution to the eurozone problem, suggesting recovery would be further restricted by any escalation of the crisis.

That prospect loomed larger last night as Greece appeared to be heading for financial disaster. There were growing fears that the country would run out of money imminently, triggering a default on its debts.

The currency crisis also appeared to widen again after a respected credit ratings agency downgraded another eurozone country, Italy, amid fears it would struggle to pay back its loans.

Business Secretary Vince Cable described the IMF warning as “plausible” and suggested it had been anticipated by the Coalition Government.

However, asked if the forecast was a reason to change course, he said: “No it isn’t. We stick to our fiscal rules.”

Chief Secretary to the Treasury Danny Alexander later said the Government would not be swayed from its course by the latest figures.

“We always said the recovery would be choppy and we have seen big problems in the eurozone and in other parts of the world, rising oil prices -- things that affect us,” he said.

“That’s why the IMF forecast is one that affects the whole world economy.”

However, Labour accused the Tory-LibDem Government of failing to wake up to the scale of the problem, accusing Coalition ministers of implementing policies that had “crushed confidence, pushed up unemployment and choked off the recovery”.

The IMF report, the World Economic Outlook, warned the US and European economies faced a lost decade of growth and comes just days before the world’s finance ministers, including Mr Osborne, are due to meet for high-level talks in Washington.

The Chancellor is already facing growing pressure over claims that independent analysis shows the black hole in Britain’s finances is £12 billion larger than originally thought.

Such a gap could prolong spending cuts beyond the 2015 General Election, when ministers had hoped to offer voters a “giveaway” budget.

The IMF slashed the UK’s growth forecast for the third time this year, down from 1.5% to just 1.1%.

Significantly, it also cut its predictions for 2012 as well, from 2.3% to 1.6%.

And it warned there was a one-in-six chance that the UK would tip back into recession.

The European Central Bank (ECB) should continue to intervene to help stricken economies, the report advised.

In America the US Federal Reserve should also be prepared to offer more emergency support.

There has been a noticeable shift in the Coalition’s stance on the economy in recent days, with Nick Clegg announcing last week that ministers had been told to spend -- albeit within tight budgets.

However, shadow chancellor Ed Balls said the Coalition must now consider a fully fledged economic “Plan B”, before it was too late.

“The IMF is saying very clearly that if slow growth continues in the UK the Government should change course and adopt steadier deficit plans,” he said.

“But since this is now the third time this year the IMF has downgraded its forecasts we can’t afford to just sit back and wait for things to get worse.”

Other figures released yesterday also suggested UK productivity lags behind most of the world’s richest nations.

Gross domestic product (GDP) per worker in the UK fell relative to all G7 countries except Italy and Germany last year, and was only higher than Japan’s in 2010.