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The UK economy is still a long way from "a strong and sustainable recovery", the International Monetary Fund (IMF) has warned.

In its concluding statement on its mission to the UK, the IMF said austerity measures were acting as a drag on the economy.

The government could do more to offset the negative impact of austerity with infrastructure spending, it said.

George Osborne said the UK would not "duck its economic challenges".

The IMF acknowledged that the UK's austerity programme had earned the government international credibility.

But speaking at a press conference in London, its deputy managing director, David Lipton, said the view of the IMF was that the UK should consider slowing the pace of cuts.

"It would be, in our view, useful for the economy for infrastructure and other measures to be brought forward to reduce the drag of austerity measures... and provide more support for the economy," he said, in response to questions from journalists.

He said the IMF's recommendations did not involve the government spending more over the medium term.

"The recommendations we have made today are fiscally neutral," he said.

"We're suggesting that within the multi-year medium-term framework that the government has laid out that it should advance infrastructure spending to provide more support for the economy.

"But that said... one has to evaluate the impact on policies on the economy as you go so whether the present medium-term framework turns out to be an appropriate one when measured next year or the year after remains to be seen."

However he admitted there was "no single silver bullet" for the UK's economic problems.

The IMF also said a "clear strategy" was needed for the UK's two part-nationalised banks, Lloyds Banking Group and Royal Bank of Scotland (RBS).

"Any strategy should seek to return the banks to private hands in a way that maximises the value for taxpayers," the statement said.

But Mr Lipton said further financial help for the two banks should not be ruled out.

Also speaking at the press conference, Chancellor George Osborne said the UK would not "duck its economic challenges", and expressed his determination to return RBS and Lloyds to the private sector.

Shadow chancellor Ed Balls said: "Behind the diplomatic language, this is the call for action on jobs and growth that the IMF has been threatening to deliver for many months and a stark warning of the consequences if the chancellor refuses to listen.

"The IMF is clear that we are a long way from the strong and sustained recovery we need, and backs the warnings we have made for three years that the government's plans are a drag on growth and risk doing long-term damage," he said.

Speaking to ´óÏó´«Ã½ Radio 4's The World at One, Danny Alexander, Chief Secretary to the Treasury, said that he accepted that more investment was desirable, but that it had to be funded by diverting spending from other areas.

"I think that the argument that we've got to make more happen on investment is right, within the fiscally neutral context that they've talked about.

"We've switched money from lower value spending, from current spending to capital, to enable more projects to go forward, and we are constantly looking for more opportunities to do that."