The IMF has warned that Britain's economy will suffer if the housing boom falters.

Its report said: "Uncertainties ahead may make for choppy waters. A less benign scenario may unfold if house price increases unwind rapidly and unemployment starts rising."

The IMF also said the economy was "performing well" and praised the government's "sound macroeconomic policies".

The government's public sector reforms are described as "bold and comprehensive" and "in principle, sensible".

But the IMF added: "Their effectiveness, in practice, remains to be tested."

And there was a warning not to give in to excessive public sector wage demands, as such a move could lead to spiralling wage bills.

Fears of a slowdown in consumer spending rose yesterday after a survey indicated that retail sales growth had fallen to its lowest level for two years.

Sales growth fell to 4.9 per cent from 7.1 per cent in the same period, according to the British Retail Consortium and KPMG.