David Cameron has insisted that the Government will stick with its economic strategy despite warnings that the economy is set to shrink by 0.4% this year.

The Prime Minister admitted that Britain faces a "very slow healing process" after the International Monetary Fund (IMF) downgraded its previous forecast of 0.2% growth.

But he dismissed calls to change course to boost growth and adopt a "Plan B" and vowed to make sure "Plan A" was "firing on all cylinders".

Mr Cameron said: "The IMF also say we shouldn't abandon our plans of making reductions in Government spending and also, regrettably in some cases, putting up some taxes to get on top of our debt and our deficit. So it's not Plan B that we need. What we are doing is making sure that every part of Plan A is firing on all cylinders."

He added: "These are difficult times but the worst thing to do when you have got a problem of too much spending, too much borrowing and too much debts is to do what Labour say and have more borrowing and more debt. You can't borrow your way out of a debt crisis."

Mr Cameron insisted the Government's latest wave of welfare cuts - an extra £10 billion on top of the planned £18 billion - would go ahead despite Liberal Democrat vows to block cuts to the poorest without further measures on the rich.

"Let me be absolutely clear, we will be taking further steps to make sure the richest in our country make a fair contribution and up to now they have paid 10 times more than the poorest 10% in terms of reducing our deficit," he said. Mr Cameron said the Conservatives would work with the Lib Dems on welfare cuts to do what was "fair and right".

He added: "The simple truth, as George Osborne put it, is this - if you need to bear down on public spending and you need to get your deficit under control and you don't want to cut schools and hospitals and the things we really value then you do need to look at the massive items of Government spending like the welfare budget." Asked why he had ruled out Lib Dem calls for a mansion tax, he said: "I think the mansion tax is a bad idea because people who work hard and put money in their homes, who save, they shouldn't have the Government coming after them every year in respect of that."

Responding to the IMF forecast of negative growth, shadow chancellor Ed Balls said: "Coming just hours after George Osborne complacently insisted he would cling on to his failing plan, these downgraded IMF forecasts are another damaging blow to the Government's economic credibility. Twelve months ago, the IMF forecast growth of 1.6% in 2012 and said a Plan B would be needed if growth were to be lower than expected. A year on, with Britain in a double-dip recession and growth forecast to be minus 0.4%, there can be no question that a change of course is urgently needed.

"The IMF has rightly warned that the Government's policies risk causing permanent damage to our economy and growth is needed to get the deficit down. And, like Labour, they've said a Plan B should include temporary tax cuts and additional infrastructure investment. It's time David Cameron and George Osborne finally listened and took action to kick-start our economy before even more damage is done."