Alistair Darling has predicted that the recession will be over by Christmas, brushing aside doubts that his Budget forecasts are overoptimistic.

In an interview with The Times, the Chancellor defied a gloomy assessment of Britain’s recovery prospects set to emerge today in an annual economic health check from the International Monetary Fund.

“I am not going to change my forecasts,” he said. “I remain confident that we will see a return to growth at the turn of the year.”

The Chancellor also indicated that he wants to stay at the Treasury despite suggestions that he could be moved to the Home or Foreign Office. Although he refused to speculate, he said: “The job is not done.”

In the Budget Mr Darling pinned the Government’s hopes on a relatively strong economic rebound next year, predicting growth of 1.25 per cent in 2010, after a predicted 3.5 per cent plunge in GDP this year. By contrast, other forecasters have warned that the economy could continue to shrink next year, with the IMF expecting a further 0.4 per cent drop.

But the Chancellor insisted that, as long as Britain and other countries fully put into effect the rescue package agreed by the Group of 20 key world economies last month, and UK banks step up lending, a firm recovery will take hold by the end of the year.

He said: “I remain confident that we will come through this, provided we ensure that we deliver what we set out at the G20, and what we are doing ourselves, particularly in relation to ensuring that the bank-lending agreements are fully implemented. That is very, very important.”

The Chancellor used the interview to pile pressure on banks to boost lending to consumers and firms.

Mr Darling also turned up the heat on European countries that he believes are dragging their feet over bolstering their banks and economies.

As an IMF taskforce prepares to complete the fund’s yearly mission to London and unveil a relatively grim view of the UK, the Chancellor rebuffed accusations that his forecasts are too rosy.

“I delivered my Budget statement four weeks ago . . . None of the figures I have seen since would change the projections that I have made,” he said.

Mr Darling argued that, while the IMF and Bank of England have taken a “more cautious” view, the shape of their forecasts, with some bounce-back expected next year, is similar to the Treasury’s.

He also played down fears that Britain could slide into the grip of full-blown deflation, after official figures yesterday showed retail prices plunging at the fastest rate since June 1948. Mr Darling insisted that the fall in inflation “is in line with expectations. Deflation is something quite different”.

He pointed to inflation on the Government’s benchmark consumer price index (CPI), which excludes housing costs, still standing at 2.3 per cent, and above its 2.0 per cent target.

The Chancellor signalled his hopes of remaining in his post despite talk that he could be moved in a summer reshuffle. Most ministers believe that is now highly unlikely.

“The job is not done. This is very much work in progress,” Mr Darling said.

On the subject of the banks he welcomed early signs that the flow of credit had begun to resume.

“What I expect is that over the course of this year you will see a gradual improvement, but we have still got to be vigilant,” he said. “The lending agreements are there. We have got to make sure they are delivered.”

The Chancellor played down reports that the Government could begin selling off its stakes in Royal Bank of Scotland and the Lloyds Banking Group within a year.

He said: “I am determined that we get the best possible deal for the taxpayer, so I am in no hurry here.”

After grave news from the eurozone, with Germany enduring its worst slump in the post-war era, and Eastern European economies in freefall, Mr Darling urged Britain’s EU partners to take more aggressive steps.

“There are times in politics, and in economics, when you need to be bold, you need to act decisively and quickly — and this is it.

Mr Darling is set to use a meeting of European finance ministers, and of ministers from the Group of Eight (G8) economies next month to press for urgent European action.

The Chancellor also foreshadowed other big challenges, including a more austere era for the public sector. With the election looming, Mr Darling made clear that a squeeze on spending needed to rein in record public borrowing will spell leaner times.

“As a country we need to live within our means. It will mean we are going to take some tough decisions — they will be difficult.”

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