Bad economic growth figures are the early evidence of the UK government’s damaging obsession with austerity, said George Soros, the financier, at the World Economic Forum in Davos on Wednesday, but his arguments brought a swift defence from London.

Mr Soros predicted that austerity next year would send the UK economy back into recession and the government would be forced to change course. “They will probably have the sense that they will have to modify [the austerity plan] when the effects are felt,” Mr Soros told reporters.“I don’t think they can possibly be implemented without pushing the economy into a recession.”

Speaking to the Financial Times later on Wednesday, Nick Clegg, Liberal Democrat deputy prime minister, admitted that the threat of ￡81bn of spending cuts had had a “chilling psychological effect” on Britain, but he insisted the coalition would not abandon its tough fiscal position.