UK's Cameron says no turning back on deficit cuts plan

Reuters News

3/7/2013 4:11:22 AM - Reuters News

By Andrew Osborn

LONDON (Reuters) - British Prime Minister David Cameron will promise on Thursday to stick to his deficit reduction plan despite the lack of growth and loss of his country's top-notch AAA credit rating, saying Britain would plunge "back into the abyss" if he changed course.

His comments come after a top minister in his junior coalition partner - the Liberal Democrats - publicly questioned Cameron's focus on cutting debt, suggesting it may be time to borrow more to invest in infrastructure.

That intervention, by Vince Cable, the business minister, on the eve of the prime minister's speech, was the strongest call yet from inside government to change course and exposed a deep rift in the coalition over the country's economic policy.

But Cameron, speaking ahead of a March 20 budget, will say there are signs his economic policies are beginning to work and will say it is imperative to "hold firm to the path".

"The decisions we make now will set the course of our economic future for years to come," he will tell an audience in Yorkshire, northern England. "And while some would falter and plunge us back into the abyss we will stick to the course."

The state of Britain's anemic economy is linked to Cameron's own political fortunes.

His advisers are banking on an economic recovery being underway by the time of the next general election in 2015, allowing Cameron to whittle away the opposition Labour Party's lead in the opinion polls and win.

But for now the economy appears stuck in a rut and could already be in its third recession since 2008, while public debt is set to carry on rising for another three years despite some public spending cuts.

"LONG HARD ROAD"

However, Cameron will tell his audience he has cut the country's deficit by a quarter, interest rates are at a record low, exports are reviving, the number of people on welfare has fallen, and there are more people in work "than ever before in our history".

"But the very moment when we're just getting some signs that we can turn our economy round and make out country a success ... is the very moment to hold firm to the path we have set," he will say."

Labour often accuses him of inflicting pain on millions of families across the country with his austerity-drive, but Cameron will say his policies are necessary to give people better living standards in the long-term.

Britain suffered its first-ever sovereign ratings downgrade from a major agency last month, after Moody's stripped the country of its triple-A rating, blaming weak prospects for the economy, and Cameron is under mounting pressure to show he can deliver growth.

Labour says Cameron's determination to stick to austerity is killing off any chances of that happening, while Cable, the outspoken minister, said low interest rates could finance more capital spending without undermining the strategy of reducing Britain's structural deficit.

Cameron's speech, which he is expected to deliver at around 1200 GMT, coincides with a knife-edge meeting of Bank of England policymakers.

The bank's rate-setting committee will reveal if it has voted to inject more money into the flat-lining economy.

(Editing by Sophie Hares and Toby Chopra)