British banks’ lenience to struggling customers may be disguising the dangers the institutions face, the International Monetary Fund warned as it delivered its latest verdict on the UK economy.

Lender forbearance, where loans are extended or payments reduced, “may, in some cases, have masked the extent of risks, given the high indebtedness of the household and commercial real estate sectors,” said the Fund.

Just last week it emerged that the Financial Services Authority has accused banks of moving mortgage customers on to less strenuous terms to conceal bad debts.

The latest warning came as the IMF delivered a strong endorsement of the Government’s austerity plans on Monday, but laid out a clear Plan B of monetary easing and tax cuts in case of an emergency.

The “unexpected” weakness in growth and rise in inflation raises the question of whether it is time to adjust economic policies, said the global lender, as it performed its annual health-check on the UK economy.

However, despite cutting its growth forecast and raising its inflation expectations to reflect recent disappointments in the data, the............Click HERE to read more