The International Monetary Fund has said the UK's economic growth could fall short of the forecasts underpinning Chancellor Gordon Brown's spending and borrowing plans.

According to the IMF's latest projections, the UK economy is set to expand by between 2.25% and 2.5% next year, significantly below the Treasury's forecast of 2.5 - 3.0%.

A shortfall in the Treasury's growth forecasts increases the risk that the Chancellor will be forced to raise taxes or cut spending in the years ahead.

Either move would be seen as a politically humiliating U-turn.

Book balancing

Faced with a decline in tax revenues as a result of weaker economic growth, Mr Brown last month unveiled controversial plans to borrow more in order to keep spending at its current high levels.

But he predicted that an upturn in growth would boost tax revenues from 2003, helping to balance the books overall.

Ominously for Mr Brown, the IMF said its growth forecasts, though lower than the Treasury's, were themselves subject to "significant downside risk."

It said there was particular uncertainty over whether the UK's strong consumer spending, a key component of overall growth, would weaken in the years ahead.

"The revenue projections underlying this fiscal outlook are more uncertain than in the past," the organisation said.

Interest rate constraints

The IMF noted that while the Bank of England had scope to cut interest rates in the event of weaker than expected growth, lower borrowing costs could exacerbate the imbalance between the UK's weak manufacturing sector and its booming property market.

The Bank of England has resisted pressure for a rate cut for the last 13 months, partly because of fears that sky-high house prices could crash if pushed up any higher.

The IMF's lower growth forecasts are sure to be seized on by Mr Brown's critics, many of whom have argued that the government's own projections are overly optimistic.

Shadow chancellor Michael Howard said last month that Mr Brown had created a "black hole" in the public accounts, accusing him of ignoring more moderate UK growth projections from independent forecasters.