Cameron Tells Davos UK Is Determined to Narrow Deficit as Growth Slows - Bloomberg

David Cameron, U.K. prime minister. Photographer: Jock Fistick/Bloomberg

Jan. 27 (Bloomberg) -- Billionaire investor George Soros talks about the European sovereign debt crisis, the outlook for commodities and the U.S. deficit. He speaks with Erik Schatzker on Bloomberg Television's "On The Move" from the World Economic Forum meeting in Davos, Switzerland. (Source: Bloomberg)

Prime Minister David Cameron reasserted his commitment to eliminating Britain's budget deficit amid criticism that his plans are choking the recovery.

"Our first priority is to kill off the specter of massive sovereign debts," Cameron told the World Economic Forum in Davos, Switzerland today. "It's going to be tough but we must see it through."

Cameron countered warnings that his budget cuts are too harsh by saying sustainable finances are a condition for growth, not an alternative. Critics including billionaire investor George Soros say the squeeze is compounding the misery for households facing soaring food and fuel prices and the threat of higher interest rates as inflation accelerates.

Britain's economy unexpectedly shrank 0.5 percent in the final three months of 2010 as the coldest December in a century hampered services and retailing, data this week showed. With underlying growth flat, it suggests the recovery is fading before the budget cuts begin in earnest in April.

"The issue in the U.K. is very simple," former Labour Prime Minister Tony Blair said in a Bloomberg Television interview from Davos today. "It's about reducing the deficit but reducing it in such a way that you don't choke off growth."

Consumer confidence plunged the most since 1994 in January, hit by an increase in sales tax, according to a survey published today by GfK NOP Ltd. The Confederation of British Industry said yesterday its retail-sales index fell for the first time in three months and stores see further weakness.

Soros Warning

Soros, who reportedly made $1 billion selling the pound in 1992, said this week that Cameron's Conservative-led government will have to rethink its budget deficit-cutting plan or risk pushing the economy back into recession.

Cameron today offered a recipe for growth: removing barriers to trade within the European Union and around the world, promoting "liberal democratic values" globally and cutting regulation.

His goal, he said, was "an economy based not on consumption and debt but on savings and investment," with "a new emphasis on manufacturing, exports and trade."

Cameron said the last Labour government had relied too much on a few sectors of the economy, especially financial services. "It's a great strength, but the tragedy of the last decade was that growth was based on too narrow a basis," he said. "That's not a sustainable model for economic growth."

Vested Interests

In Davos, Chancellor of the Exchequer George Osborne hit back at criticism from the Labour opposition. He said its policies had left Britain more indebted than most major nations and vowed to fight "vested interests" resisting the cuts.

"Right now the right long-term choices for the economy are the difficult choices," he said. "Adjustment will not be without struggle."

Unions representing workers in the public and private sectors met in London today to discuss coordinated action against the spending cuts. A mass demonstration is planned for March 26, three days after Osborne delivers his annual budget.

Workers are facing a "volatile cocktail" of job cuts and attacks on pay and pensions that could spark industrial action, Brendan Barber, general secretary of the Trades Union Congress, warned after the talks.

Industrial Action

"The government's agenda is doing huge damage to the economy and vital public services," Barber said in an e-mailed statement. "No one is talking about a general strike, but of course these attacks on our members could well give rise to industrial action around specific disputes."

Cameron said that without determined action to cut the deficit, higher real interest will prevent a recovery from materializing

The prime minister made the deficit, which grew to 11.1 percent of gross domestic product in the last fiscal year, his top priority after Standard & Poor's threatened to lower the U.K.'s AAA credit rating in May 2009. S&P affirmed the rating after the government last year set out plans to virtually eliminate the shortfall by 2015.

To contact the reporters on this story: Gonzalo Vina in London at gvina@bloomberg.net; or Robert Hutton in London at rhutton1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net