The International Monetary Fund (IMF) has endorsed the coalition government's plans to cut spending.
The IMF said the cuts, set out by chancellor George Osborne, were "essential" in supporting the UK's debt position and said they "supported a balanced recovery".
It also said companies were starting to increase investment as "the demand outlook strengthens".
The body also predicted economic growth of two per cent in 2011, although this was lower than its previous estimate of 2.1 per cent.
The IMF said: "Economic recovery is underway, unemployment has stabilised and financial sector health has improved."
It did acknowledge that the spending cuts designed to reduce the government's budget deficit would hit growth, but it said that the economy would continue to recover.
"Fiscal tightening will dampen short-term growth but not stop it as other sectors of the economy emerge as drivers of recovery, supported by continued monetary stimulus."