George Osborne has said he welcomes the International Monetary Fund's "continuing support for the UK deficit reduction plan" as it publishes its assessment of the UK.

The Chancellor made the comments at a press conference this morning as new figures showed that inflation in the UK fell to 3 per cent in April. The drop in inflation spares Sir Mervyn King, Governor of the Bank of England, the embarrassment of writing a 10th successive quarterly letter of explanation to the Chancellor.

Mr Osborne was also speaking in the wake of the latest gloomy predictions for the eurozone’s economic prospects, with the OECD predicting the single currency area would contract by 0.1% in 2012.

"The British government is doing contingency planning for all potential outcomes," said Mr Osborne.

Christine Lagarde, head of the IMF, also spoke. In a later interview, she advised the Government to make use of record low interest rates on borrowing to help British businesses. Ms Lagade added that fiscal easing would be recommended if growth remained low after other policies were exhausted. But a Downing Street spokeswoman said this afternoon: "She made very clear that that was not the sitaution now."

Responding to the latest developments, Shadow Chancellor Ed Balls told Sky News: "The reality is the Osborne plan has failed, the Cameron-Merkel approach is not working in Europe. We need a plan for jobs and growth, the IMF agree with that and I think all this prevarication is deeply damaging for the long-term future of our economy."

European leaders will meet in Brussels tomorrow evening, where the new French President Francois Hollande will reportedly push Germany to agree to pooled ‘eurobonds’.

Meanwhile a new poll for the Guardian found that 72% of Britons believe Greece will leave the eurozone, with 26% thinking the euro will unravel altogether.

George Osborne has said he welcomes the International Monetary Fund's "continuing support for the UK deficit reduction plan" as it publishes its assessment of the UK.

The Chancellor made the comments at a press conference this morning as new figures showed that inflation in the UK fell to 3 per cent in April. The drop in inflation spares Sir Mervyn King, Governor of the Bank of England, the embarrassment of writing a 10th successive quarterly letter of explanation to the Chancellor.

Mr Osborne was also speaking in the wake of the latest gloomy predictions for the eurozone’s economic prospects, with the OECD predicting the single currency area would contract by 0.1% in 2012.

"The British government is doing contingency planning for all potential outcomes," said Mr Osborne.

Christine Lagarde, head of the IMF, also spoke. In a later interview, she advised the Government to make use of record low interest rates on borrowing to help British businesses. Ms Lagade added that fiscal easing would be recommended if growth remained low after other policies were exhausted. But a Downing Street spokeswoman said this afternoon: "She made very clear that that was not the sitaution now."

Responding to the latest developments, Shadow Chancellor Ed Balls told Sky News: "The reality is the Osborne plan has failed, the Cameron-Merkel approach is not working in Europe. We need a plan for jobs and growth, the IMF agree with that and I think all this prevarication is deeply damaging for the long-term future of our economy."

European leaders will meet in Brussels tomorrow evening, where the new French President Francois Hollande will reportedly push Germany to agree to pooled ‘eurobonds’.

Meanwhile a new poll for the Guardian found that 72% of Britons believe Greece will leave the eurozone, with 26% thinking the euro will unravel altogether.

World leaders "still haven't done enough" to resolve the crisis in the eurozone, David Cameron has warned.

Speaking to reporters at the Nato summit in Chicago this afternoon, the Prime Minister defended Britain's involvement in the ongoing discussions, saying it was "more dangerous to stay silent" than to speak out to address the eurozone's problems.

"We need these issues to be resolved," Mr Cameron said.

"While I would commend what has happened in the eurozone in terms many of the steps they have taken to make their economies more competitive, to address some of the problems...the truth is that we still haven't done enough to decisively resolve the crisis.

"I judge that it would be more dangerous to stay silent and to say there's nothing we can do about this, there's no contribution we can make, because these issues have to be resolved, and in my view the more swiftly and effectively and comprehensively they can be resolved, the faster the eurozone will be able to return to growth."

The statement follows earlier comments from Downing Street that the Greek elections could be seen as a referendum on the country's membership of the European Union.

Following reports that Mr Cameron believes Greek people will be voting not just on a Government but on whether the country remains in the eurozone, a Number 10 spokeswoman said the matter was one for the Greek people.

But when asked whether a vote against austerity measures would mean a vote against meeting the country's commitments within the single currency, the spokeswoman said: "That's clearly a matter for the Greek people but that's an interpretation."

Both of the parties likely to do well in the elections back continued Greek membership of the single currency, but eurozone leaders say a result that led to Greece renegotiating a deal to bail out its debts to foreign banks might lead to the country leaving the single currency area.

The Deputy Prime Minister Nick Clegg also warned the crisis could "fuel extremism", warning that it could make the debate about EU membership look "like a small side show".

Labour has criticised Mr Cameron for siding with Germany, rather than France or US, as the eurozone crisis deepens.

Shadow Chancellor Ed Balls said the Prime Minister had been "all over the place" on the eurozone crisis, accusing him of having a multitude of different positions.

Speaking to BBC Radio 4, he added: "I’m afraid the problem is that David Cameron for the last two years has been supporting the German position which is now an increasingly isolated position, a very different position from the Obama-Hollande view that we need a more balanced plan on austerity, medium-term tough decision, but a plan now on jobs and growth.

"Unless there’s a change in Germany we aren’t going to see this crisis resolve and I don’t think David Cameron’s posturing today helps at all, I just think it makes things worse."

Pressure is growing on Labour leader Ed Miliband to back a referendum asking Britons whether to remain in or leave the European Union.

But this morning Shadow Chancellor Ed Balls said that while it was important to consult the British people on a referendum, it was not an immediate priority. He told Murnaghan on Sky News: "If you went to my constituency today and said what do you worry about most, they would say why isn't the eurozone sorting things out? I'm worried about jobs and investment in our area from a eurozone crisis. Right now I do think that is the biggest priority."

Asked whether he was not ruling a referendum out, Mr Balls replied: "Well, look, I said what I said last week and I don't think anybody sensible would do that but it's not the issue now."

The Observer reports that senior party figures, including new policy review chief Jon Cruddas, have called for Mr Miliband to make a firm commitment to an in/out referendum before the 2014 European elections.

Speaking to Sky News, Justice Secretary Ken Clarke, a pro-European Conservative, said he thought a referendum would be "irrelevant".

"I can’t think of anything more irrelevant to the present situation actually, nor personally can I think of anything more disastrous than the British leaving the European Union and deciding that now is the moment to take up Splendid Isolation alongside Iceland and others," he told the programme.

Ken Clarke has said that a Greek exit from the euro is "quite likely" if radical socialists are elected next month.

The Justice Secretary predicted that the Greeks would default on their debt if the leftwing Syriza party were elected. Speaking on Murnaghan on Sky News, he also defended the Coalition's "austerity with growth" policy and said Ed Miliband and Ed Balls were "as irresponsible as the Greeks" when they were advising Gordon Brown on debt and borrowing.

Former chancellor Alistair Darling and Shadow Chancellor Ed Balls took to the airwaves to warn that reducing public expenditure was choking the recovery, but Mr Clarke told LBC Radio: "There's a silly debate breaking, I think, among some of the commentators about there is some sort of choice between austerity - by which they mean fiscal discipline - on one hand and growth on the other hand. It's actually an absolute platitude to say we need both - the British Government's been saying that for months."

Speaking after G8 leaders agreed a new focus on jobs and growth, Mr Darling told the Andrew Marr Show on BBC One: "There is no doubt that reducing public expenditure at a time when individuals and business have stopped spending does run the risk of crashing the economy, and that’s pretty much what’s happened."

Mr Balls repeated the claim on Murnaghan on Sky News. Asked whether the recession was caused by the cuts, he said: "I do, I do, and I don't think there's any doubt about that. All the evidence is that Britain went into recession before the eurozone crisis here in the domestic economy, that actually the eurozone today is not in recession while Britain is, and our recovery was choked off by bringing forward bigger spending cuts but also the early tax rises, the rise in VAT, which hit confidence, hit growth, and pushed us back into recession, pushed unemployment up and also means George Osborne's even borrowing £150bn more than he planned."

Barack Obama said last night that there was an "emerging consensus" that European countries should focus on jobs and growth. Speaking after the G8 summit, the US President said he was confident Europe could meet the challenges it faced.

A communique drawn up by the leaders at the summit in Maryland stated that they wanted Greece to remain in the eurozone and that they would promote both growth and fiscal responsibility.

Their statement said: "We agree on the importance of a strong and cohesive eurozone for global stability and recovery, and we affirm our interest in Greece remaining in the eurozone while respecting its commitments." Former Greek finance minister George Papaconstantinou suggested there were aspects of the bailout deal with the EU and the International Monetary Fund which he would like to renegotiate, but insisted Greece must honour its commitments.

This morning Justice Secretary Ken Clarke told Sky News that Greece's voters must be "responsible" when deciding their country's future.

"If they get a hopeless lot of rather cranky extremists elected at the next election then they will default on their debt. Everybody says they’ll leave the euro, actually that’s quite quite likely but it doesn’t necessary follow."

The leaders of the G8 group of countries say they want Greece to remain in the eurozone.

In a statement the leaders said: "We agree on the importance of a strong and cohesive eurozone for global stability and recovery, and we affirm our interest in Greece remaining in the eurozone while respecting its commitments."

Earlier David Cameron spoke of a "growing sense of urgency" about the eurozone crisis at the G8 summit, while Barack Obama said leaders were committed to a solution incorporating "both growth and stability and fiscal consolidation".

Speaking from Camp David, the Prime Minister told reporters: "I think there is a good sense of talks taking place, and a good sense that action needs to follow." 

"The G8 can’t instruct the eurozone what to do, but why meetings like this matter is that eurozone countries can hear from countries outside the eurozone whose economies are affected – obviously Britain, but also America, Japan, Canada.

"It’s very important these messages get across. I’d say there is a growing sense of urgency, that action needs to be taken, contingency plans need to be put in place, and the strengthening of banks, governments, firewalls and all those things need to take place pretty fast."

In his welcoming remarks, President Obama outlined some of the issues that the leaders would be discussing, including the eurozone.

He said: "All of us are absolutely committed to making sure that both growth and stability and fiscal consolidation are part of a overall package that all of us have to pursue in order to achieve the kind of prosperity for our citizens that we're looking for."

He also remarked that brief discussions had already been held on a range of international issues, including Iran's nuclear programme, which he said remained "of grave concern to all of us."

President Obama is expected to use the remainder of the summit to push for policies aimed at boosting growth, and met with new French president Francois Hollande on Friday for one-to-one talks.

Mr Hollande's proposal to raise €57bn through a financial transactions tax has been rejected outright by Mr Cameron, who said on arrival in Washington that he was "very clear" such a tax was "not a sensible measure".

In an exclusive piece for PoliticsHome ahead of the meeting, Mr Cameron called for decisive action, urging world leaders to move on from the "overblown" summits of the past and "actually get things done".

Shadow Business Secretary Chuka Umunna said this morning it is "absolutely crucial" that leaders resolve the crisis as soon as possible, and hit out at the Prime Minister for not learning from his European Council veto last December.

"If you go back to December and the European Council where the Prime Minister so spectacularly fell out with the other leaders in Europe, we were saying this is precisely why you need to have a Prime Minister who is deeply engaged with what is going on. The shame of it is, actually, he doesn’t seem to have learnt from that," he told BBC's Today programme.

"Instead of seeing the kind of posturing we’re seeing from the Prime Minister, talking about the prospect of a financial transactions tax, which is not even on the agenda, we need to see some grown up statesmanship to actually bring together different world leaders to resolve this issue. That is what the British public expect."

Angela Merkel has denied she raised the prospect of Greece holding a referendum on its eurozone membership.

The remark allegedly came after the German finance minister said market unrest fuelled by the eurozone debt crisis could only last another year or two.

As Greece was downgraded again yesterday, an election poll showed that politicians backing austerity would secure up to a 167-seat majority in the new parliament.

Financial experts have warned that Britain could be plunged into a second recession if Greece were to exit the euro, causing "irreparable damage" to the UK.

Meanwhile, Reuters reports that European officials are now working on plans in case Greece does leave.

German Chancellor Angela Merkel did not suggest that Greece holds a referendum on its membership of the European single currency, a German Government spokesperson has said.

The denial by the German government comes an hour after a Greek Government spokesperson told journalists that Ms Merkel had suggested holding a vote on the same day as re-run Parliamentary elections.

The dispute comes as the chair of the Office for Budget Responsibility Robert Chote warned that a Greek exit from the eurozone could cause lasting damage to the British economy.

In an interview with the Guardian, Mr Chote said a British recession caused by Greece leaving the single currency might mean "you go down and you never quite get back to where you started".

His comments followed a stark warning this afternoon by Chancellor George Osborne, who told the annual meeting of the European Bank for Reconstruction and Development that the crisis in the eurozone could undo the work of the last 20 years in constructing stable economies in Europe.

Mr Osborne said: "As the storms of the eurozone crisis gather, there is a risk that some of the good work of the last 20 years in building a stable financial sector and creating jobs and prosperity is unwound.

"Like the UK, the region’s growth prospects are closely tied to those of the euro area, and deleveraging magnifies this effect."

A senior Brussels official also claimed today that the European Union is working on a plan for Greece to exit the euro, warning that the single currency will have to fight a "cataclysm" in order to survive.

Karel De Gucht told De Standaard: ”A year and a half ago there may have been the danger of a domino effect. But today there are, both within the European Central Bank and the European Commission, services that are working on emergency scenarios in case Greece doesn't make it.”

The EU's Belgian trade commissioner added: "All you can do is have your central bank to print money, and then you get hyperinflation. That would cause a cataclysm in other countries that are now under pressure."

But Vice-President of the European Commission Olli Rehn denied Mr Gucht's comments were true. He told Channel 4 News: “If you a referring to statements by Karel De Gucht he is responsible for trade in the European commerce. I am responsible for economic and monetary affairs and relations to the European Central Bank and we are not preparing for any Greek exit. We are working in order to enable Greece to stay in the euro.".

Mr Rehn also appeared to warn Prime Minister David Cameron against "dramatising" the problems in the eurozone, saying "I appreciate friendly policy advice from the UK Prime Minister". He added: "From outside the euro area it is often easy to dramatise things. I have studied in Great Britain and I am a big fan of English imperialism. Real life is usually a shade of grey rather than black and white. So we will go through this crisis, we will take the necessary decisions to overcome the crisis. It may not always be the most elegant and beautiful but we will overcome and we will return to sustainable growth and better employment."