The international speculator George Soros warned David Cameron tonight that the government would push the British economy back into recession unless it modified its hardline austerity package.

Speaking in Davos, Switzerland, the hedge fund owner who famously wrecked the reputation for financial competence of the last Conservative administration on Black Wednesday said the mix of tax increases and spending cuts planned by the coalition was unsustainable.

Soros's suggestion that the UK needed a plan B came only hours after Cameron insisted in fierce Commons exchanges with the Labour leader, Ed Miliband, that there would be no change of government policy following the unexpected news yesterday that the economy contracted by 0.5% in the final three months of 2010.

"I think they may be right in embarking on it [the austerity programme] but I think they will probably have the sense that they will have to modify it when the effects are felt," Soros said. "I don't think it can possibly be implemented without pushing the economy into a recession." Noting that the initial market reaction to the government's tough stance had been positive, Soros added: "We will have to see it unfold. My expectation is that it will prove to be unsustainable."

Soros made his reputation in 1992, when his large-scale speculative attacks on the pound forced John Major's government to remove sterling from the exchange rate mechanism, and when Cameron was an aide to chancellor Norman Lamont. Soros's concerns came after a warning by Nouriel Roubini, one of the few economists to predict the financial crisis of 2007 and 2008. Known as Dr Doom for his pessimism, Roubini bracketed the UK with the weaker parts of the eurozone as a pocket of the global economy where there remained a risk of a double-dip recession.

Comparing the outlook with that at the Davos economic forum in 2010, he said: "The tail risks of an outright double-dip recession and outright deflation are lower than they were last year, even if the data for the UK and the peripheral eurozone economies seems to suggest there are risks of a double dip."

In the Commons, Miliband said the coalition's policies were "hurting but not working" and that it was time for ministers to change course.

Echoing comments made by Mervyn King, the governor of the Bank of England, yesterday, the prime minister said it was inevitable that the recovery would be "choppy and it will be difficult".

He added: "The worst thing you could do would be to ditch your plans on the basis of one quarter's figures." But Miliband said: "If you don't have growth, you will never cut the deficit."