Nick Clegg said instructions had been issued to the Treasury setting out the Government's plan to use its balance sheet to underwrite major projects such as housing.

The IMF urged the UK to look at fuelling infrastructure funding or cutting VAT or National Insurance if the economic situation worsened.

And Mr Clegg conceded the coalition's stark economic warnings could have a "dampening effect", adding that ministers had initially had no choice but to set out "in very lurid terms the state of the emergency we were facing".

"That kind of language over a prolonged period of time can have a dampening effect on mood, which is very important in an economy," he added.

In its annual report on the state of the UK economy, the IMF said that deficit reduction was "essential" in the medium term and paid tribute to the "substantial progress" towards a sustainable budget delivered by the coalition Government's austerity programme.

But the report warned of the "large" risk of an escalation in the eurozone crisis which would deliver a "substantial contractionary shock" to the UK economy.

In the case of such a shock - such as Greek withdrawal from the single currency - or a failure of the UK economy to escape double-dip recession, the authorities should be prepared to implement short-term measures to shore up growth and to put back the target for balancing the books beyond the current date of 2017.

Labour Shadow Chancellor Ed Balls seized on the IMF report claiming it vindicated Labour's position that the coalition lacked a credible growth plan.

"George Osborne is still saying he is going to delay acting, doing something to get our economy moving," he said.

"He is hoping things will get better but all the evidence is that we are in recession, prices are rising, our wages are going down, unemployment is high.

"I think the IMF is right to be urging the Government to get on with it. We need a tough plan to get the deficit down but it has got to work."

We have been listening to the blame game for the past couple. Labour says the double-dip recession is the coalition's fault. Too much austerity, they claim.

The Tory-Lib Dem coalition says it has had to cut deep to clear up the economic mess left by the last Labour Government. And it blames much of our current troubles on the eurozone crisis.

So who is right? The answer is both, and neither.

Labour did fritter away too much and it now seems clear the coalition is cutting too deep without a credible plan for growth.

But there are many other factors outside of the control of politicians.

Expert after expert has lined up to tell us that Greece will either leave the eurozone or it will stay. EU leaders are certainly making efforts to keep Greece in but then the money markets are already pricing on the basis of a Greek exit.

And if it does exit, what will happen then? Again, there is no shortage of economists willing to outline what they think the ramifications will be.

The truth is, no one really knows. Such a scenario, certainly on this scale, is unprecedented.

It could be contained with just a little collateral damage to Europe's banks - or it could prompt what some have described as an "economic tsunami", pushing Europe and possible the world into a deep recession. Spain, Italy, Ireland and even France could all follow Greece.

You only have to look at how often Government's and central banks change their economic forecasts from one quarter to the next to see what an imprecise science economics is.