Chancellor's biggest challenge yet as UK teeters on brink of a triple-dip recession

George Osborne faces the most severe test of his Chancellorship tomorrow morning when official figures reveal whether or not the economy has slipped into an unprecedented "triple-dip" recession.

The political pressure on the Chancellor to ease off his planned spending cuts will be intensified if the official growth figures for the first three months of this year show a negative number.

Last week the International Monetary Fund (IMF), which was once an enthusiastic supporter of the Chancellor's austerity programme, called on Mr Osborne to slow the pace of cuts in order to support growth. And, in a humiliating blow, Fitch became the second major credit agency to strip the UK of its AAA rating, citing concerns about weak growth and rising national debt levels. Upon taking office in May 2010, Mr Osborne made safeguarding Britain's impeccable credit rating his top priority.

The economy shrank by 0.3 per cent in the final three months of 2012. A further contraction between January and March would imply six months of falling output, meeting the technical definition of a recession. Economic analysts say that there is a 50/50 chance that the economy shrank again in the first quarter, when retailers and the construction industry were hampered by freezing weather. This would be the third time that the UK has been in recession since the 2008 global financial crisis.

The economy has stagnated since the autumn of 2010, with the lack of growth serving to push up public borrowing. Yesterday the Office for National Statistics said that the full deficit for 2012-13 came in at £120.6bn – £300m lower than the previous financial year. This enabled the Government to claim that the deficit is still falling.

But tax receipts were much weaker than projected a year ago and the Chancellor only managed to bring down the overall borrowing figure by slashing departmental spending in the final few months of the financial year and resorting to other unorthodox measures such as delaying various UK subscription payments to international organisations such as the World Bank.

The chorus imploring the Chancellor to ease off his planned spending cuts is growing.

This week Bill Gross, the manager of the world's largest bond investor, Pimco, and another former supporter of Mr Osborne, said that the cuts had gone far enough. "The UK and almost all of Europe have erred in terms of believing that austerity, fiscal austerity in the short term, is the way to produce real growth. It is not. You've got to spend money" he told the Financial Times.

There was, however, some support for the Chancellor from Lloyd Blankfein, the chief executive of the Wall Street investment bank Goldman Sachs, who said that Mr Osborne should "stay the course for a little longer". However, Mr Blankfein, speaking on a trip to the UK, added that he could understand why there were mounting calls for the Chancellor to "relax the throttle" on austerity.

A team of economists from the IMF will arrive in the UK next month to conduct the latest review of the economy. There is likely to be tension with the Government, with Treasury sources warning that the Fund will be ignored if it persists in demanding a relaxation of the Government's programme of spending cuts.

In an effort to get on the front foot, the Treasury and the Bank of England will today announce the details of an extension of the Funding for Lending scheme, designed to increase the flow of bank loans to small businesses and mortgage borrowers. Mr Osborne will also receive the GDP figures at 9.30am today under an embargo from the ONS.