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IMF backs coalition's austerity package

Chancellor leaps on report, saying it proves the government has "decisively won" the deficit debate.

The International Monetary Fund (IMF) has said that the British economy is "on the mend" and backed the coalition government's plans to cut spending.

In its first official verdict on the coalition's policies, the IMF said that the deficit reduction plan was "essential".

It said that the UK would continue to recover while cuts were implemented, although the pace of that recovery would slow.

The body predicted growth of 2 per cent in 2011, rising to 2.5 per cent in the medium term. This is a small revision downwards from an earlier forecast of 2.1 per cent in 2011.

"Economic recovery is underway, unemployment has stabilised and financial sector health has improved," the IMF said.

The Chancellor, George Osborne, seized on the report, saying that it proved that the government had "decisively won" the debate on the deficit, ahead of next month's spending review which will spell out exactly where the axe will fall.

He said: "On a day when people are looking at alternative plans to reduce the deficit, it's very good that the IMF have joined us alongside the Bank of England, British industry through the CBI and others in saying that what we're doing is right."

Ed Miliband will have to take this into consideration when he makes his first speech as Labour leader today. He has advocated cutting at a slower pace to avoid plunging Britain into a double dip recession.