LONDON (Reuters) - Britain's economy will shrink sharply in 2009 before edging into growth in 2010, and the government should make clear plans to reduce borrowing when recovery comes, the International Monetary Fund said yesterday.

In its annual health-check on the British economy, the IMF said the country had succeeded in averting financial meltdown, but now needed to focus on ensuring public borrowing did not get out of control during its deepest recession for decades.

"Market conditions so far suggest the UK is getting the benefit of the doubt. But this benefit of the doubt will not last forever," said Ajai Chopra, the IMF's mission chief for Britain. The IMF forecast Britain's economy will shrink 4.2 percent this year before recovering to grow 0.2 percent in 2010, unchanged from forecasts released earlier this month.

"The economic outlook is highly uncertain. Recent indicators suggest that economic activity has begun to stabilise. However, the recovery is likely to be slow and subdued as banks and households go through a difficult balance sheet adjustment," the IMF said.

The global economic watchdog's forecasts are gloomier than government projections of 3.25-3.75 percent contraction in 2009 followed by 1.0-1.5 percent growth in 2010, and it identified rocketing government debt as a major vulnerability.

Borrowing was likely to equal around 13 percent of GDP in 2009 and 2010, with total debt approaching 100 percent of GDP over the next five years.