Ministers insisted there would be no backsliding on the government's hardline austerity programmes after data showed that Britain's economy grew by just 0.2% in the spring.

Amid Treasury relief that output did not fall in the three months to June, George Osborne, the chancellor, said a U-turn on deficit reduction would put economic stability at risk. The rest of the world would consider Britain to be "completely mad" if the government abandoned its deficit reduction plans, he said.

But Osborne was accused of being "breathtakingly complacent" by the shadow chancellor, Ed Balls, who said the economy had flatlined as a result of the government's tax and spending plans.

"The positive news is that the British economy is continuing to grow and is creating jobs," said Osborne. "And it is positive news too that at a time of real international instability we are a safe haven in the storm."

Although the City believes that Osborne will now have no choice but to trim his growth forecast for 2011 to little more than 1%, allies of Balls recognise that it may take another third quarter of poor growth, due to be published in October, for the chancellor to be seriously challenged and for the public to recognise that they are the victims of a reckless political experiment.

In the first sign of Conservative pressure for a change of course, the London mayor Boris Johnson said: "You have to look at ways of stimulating growth now.

"Certainly you should look at national insurance, you should look at ways of stimulating consumption, confidence in the market, and certainly I think [look at cutting] the 50p tax rate as a signal that London is open for business, that London is a great international competitive capital."

Balls responded to figures from the Office for National Statistics showing that the economy had grown by just 0.7% over the 12 months to June by accusing the chancellor of being "in total denial" over the state of the economy and called on Osborne to reverse his decision to raise VAT to 20% at the start of the year.

"People up and down the country will hear that, look at their own lives, their bills, local shops and think he doesn't understand what's going on" Balls said.

"These figures show that last year's recovery has been recklessly choked off by George Osborne's VAT rise and spending review.

"The economy has effectively flatlined for nine months and this is very bad news for jobs, living standards, business investment and for getting the deficit down.

"Just 0.2% growth over the nine months since this government's spending review and VAT rise compares to 2.1% in the previous nine months when the economic recovery was taking hold.

"Every other major economy in the world has faced challenges like high world oil prices but their economies have continued to recover while Britain has barely grown at all over the last nine months."

The Treasury and Downing Street denied reports there were tensions over economic strategy after the ONS said that the UK had so far recouped only 2.5 percentage points of the 6.4% drop in gross domestic product suffered during the UK's worst post-war slump.

David Cameron said: "Unlike previous governments, there is one team at the heart of this government: that is the chancellor and the prime minister working together."

Urged on by the business secretary Vince Cable, Osborne will return to fresh growth measures in the autumn statement, and will look at possible tax cuts in the spring budget next year, with the chief target likely to be the abolition of the 50p income tax rate.

It also appears that Jeremy Heywood, the Downing Street permanent secretary, urged civil servants at a cross-government meeting last week to do more to support the deregulation agenda. Cameron has been frustrated at what he regards as the enemies of enterprise in Whitehall, including the way in which some civil servants either add extra regulation or resist deregulation.

The chancellor dismissed suggestions that he was at odds with the prime minister over economic policy as "nonsense".

"The absolutely fundamental requirement is economic stability. Without that you have nothing," he said on Radio 4's The World at One. "Would we really take the risk of yet more debt? Would we risk the sky high interest rates, the economic instability?

"Our economy is stable at this time because this government has taken the difficult decisions to get to grips with Britain's debts. Abandoning that now, as some argue we should, would only risk British jobs and growth."

Brendan Barber, general secretary of the TUC, said: "It's hurting, but it isn't working. Ministers told us that deep rapid cuts would get the economy back on course and leave the private sector room to grow. But the treatment has turned out to be worse than the disease, and with the government borrowing more last month than they did a year ago they are not even tackling the deficit effectively. The detail in the figures is even more worrying. There is no sign of an export-led recovery with productive industries falling by 1.4%. And the cuts are now beginning to bite as the government made no contribution to growth last quarter."