BRITAIN is in the grip of a “Brexit squeeze” as gloomier economic forecasts undermine consumer confidence and families begin to tighten their purse strings on the High Street.

While the International Monetary Fund downgraded its UK growth forecast for this year, describing Britain’s economic performance thus far in 2017 as “tepid,” it upgraded its predictions for much of the Eurozone.

Downing Street sought to brush aside the downgrade, insisting the country’s economy remained strong but Theresa May’s political opponents said falling expectations about the UK’s economic future were largely down to the Prime Minister’s pursuit of an “extreme Brexit” ie outwith the European single market and customs union.

The IMF’s predictions came as a new survey showed British households are spending less money on holidays, cars and white goods after suffering the tightest squeeze on their finances for three years.

The IHS Markit Household Finance Index hit 41.8 in July, down from 43.7 in June, and well below 50, a reading above which indicates growth.

Higher inflation and sluggish wage growth weighed on spending power with the amount spent on big-ticket items falling at the fastest rate since December 2013.

"There are signs that squeezed household budgets and worries about earnings have started to spill over to consumer spending patterns,” said Tim Moore, IHS Markit’s senior economist.

"Consumer aversion to spending on big-ticket items - such as cars, holidays and large appliances - appears to have been magnified by upward pressures on household debt as well as stretched cash available to spend,” he added.

The UK economy's lacklustre start to the year is expected to continue when official figures for the second quarter are released on Wednesday.

In its latest World Economic Outlook, the IMF said it now expected the UK economy to grow by 1.7 per cent, down from April's 2.0 per cent prediction. This is the biggest downgrade for any advanced economy. In contrast, the eurozone as a whole is expected to grow by 1.9 per cent this year, up from 1.7. Spain is now forecast to grow by 3.1 per cent this year, up from the previous prediction of 2.6.

Maurice Obstfeld, the world body’s chief economist, said the UK figure was based purely on economic growth so far in 2017 rather than any concerns over Brexit in the future.

But he stressed: “We stick to our forecasts that Brexit will be a negative to the British economy. Our forecasts are right now that it's a mild negative, because we have a favourably optimistic view of how the negotiations will go. But if the parties are not reasonable and collaborative, things could be worse."

Sir Vince Cable, the new Liberal Democrat leader, highlighted how the IMF downgrade was the biggest for any advanced economy.

"That is largely down to Theresa May's determination to pursue an extreme Brexit that endangers our free trade with the world's largest single market,” he declared.

"One of the most frequently rehearsed arguments of the Brexiteers for leaving the EU has always been the low growth of the eurozone. How ironic, then, that the IMF now predicts the eurozone will outperform what it politely describes as Britain's 'tepid' economic performance," Sir Vince added.

Kirsty Blackman for the SNP said the downgrade was another worrying sign of the damaging impact the Tories' "extreme Brexit" was already having on the economy even before withdrawal from the EU.

“The Tory Government’s disastrous plan to rip us out of the world’s largest single market and customs union is by far the biggest threat to our long-term prosperity with the potential to cost Scotland up to 80,000 jobs and £11.2 billion per year; hitting family incomes and living standards across the country.

“It is now absolutely essential that the devolved administrations are represented in these Brexit negotiations; Scotland’s voice must be heard and our interests must be protected. The ongoing political soap opera in the UK Cabinet is hurting all of us and it is clearer than ever that the Tories simply cannot be trusted negotiate a good deal on our behalf.” added the Nationalists' economic spokeswoman.

Labour backbencher Heidi Alexander, a leading supporter of Open Britain, which campaigns for close ties to the EU, said the IMF figures “underline how the uncertainty and loss of confidence caused by the Brexit vote is hampering our economy”.

She claimed if the Government persisted with its plan for a “hard and destructive Brexit”, Britain’s growth figures were likely to get even worse.

But the Treasury insisted the fundamentals of the UK economy were strong with employment at a record high and the deficit down by three quarters since 2009.

"This forecast underscores exactly why our plans to increase productivity and ensure we get the very best deal with the EU are vitally important,” insisted a spokesman.

No 10 brushed aside the IMF prediction as “one of a number of forecasts" and stressed: "Owing to years of hard work and sacrifice by the public, the UK economy is in a strong position.”