George Osborne has been dealt a double blow by the International Monetary Fund, after it told the chancellor he should consider changing his austerity plans and slashed its growth forecasts for the UK economy.
On Tuesday the IMF said the private sector was being hampered by a lack of credit and economic uncertainty and cut this year's forecast growth from 1% to 0.7% and 2014's projection from 1.9% to 1.5%.
The body suggested Osborne should consider moving to an economic Plan B in the light of "lacklustre" private demand.
The World Economic Outlook report also suggested further action on monetary policy, potentially including the purchase of private sector assets.
The report said: "In the United Kingdom, the recovery is progressing slowly, notably in the context of weak external demand and ongoing fiscal consolidation."
It noted that rebalancing from the public to private sector was "being held back by deleveraging, tight credit conditions and economic uncertainty".
Hopes for an export-led recovery were also being hit as "declining productivity growth and high unit labour costs are holding back much needed external rebalancing".
In its suggested policy responses, the report said: "In the United Kingdom, other forms of monetary easing could be considered, including the purchase of private sector assets and greater transparency on the likely future monetary stance.
"Greater near-term flexibility in the path of fiscal adjustment should be considered in the light of lacklustre private demand."
"They are right to step up their warnings and insist that a change of economic policy is considered right now," he said.
“Our economy has flatlined for two and a half years, real wages are falling month by month and the result is £245 billion more borrowing than planned to pay for this economic failure. How much more damage needs to be done before the chancellor finally acts?
"These downgraded growth forecasts are yet another damaging blow to a downgraded Chancellor whose economic policies have totally failed."
The IMF's projection for 2013 is more optimistic than the forecast of 0.6% growth from the Office for Budget Responsibility (OBR).
In his budget last month Osborne said the OBR had halved its forecast for this year from 1.2% and had also cut its prediction for next year to 1.8%.
The IMF's forecasts for the UK come as the body warned "the road to recovery in the advanced economies will remain bumpy".
The report forecast a -0.3% slump in the eurozone as a whole for 2013, with the single currency's economic powerhouse Germany expected to grow 0.6% but France set to experience a -0.1% contraction.
The World Economic Outlook predicted growth in the US of 1.9% and 8.0% in China. The forecast for world output growth has been cut from 3.5% to 3.3%.