Prime Minister David Cameron said on Monday calls for temporary fiscal stimulus to boost the country's faltering economy were dangerously wrong, and warned Britain risked the fate of Italy or Spain if he wavered from debt reduction plans.
Speaking to business leaders a week before the government's autumn budget statement, Cameron did flag some low-cost measures to support growth, such as underwriting mortgages for first-time homebuyers.
But the Conservative leader said proposals from the opposition for a government cash injection to boost the economy lacked support from business and would make Britain's economic problems worse, not better.
We are recovering from a debt crisis, not a traditional recession. People who argue that traditional fiscal stimulus, extra spending funded by even more borrowing, is the right answer are not just wrong, but dangerously wrong, he said.
Cameron said Britain would face a crippling rise in government borrowing costs if he and his Liberal Democrat coalition partners deviated from a plan to largely eliminate the country's budget deficit over the next five years.
Just look at countries in Europe that don't have credible plans for dealing with their debts. Their interest rates are climbing to levels that will make growth impossible, he told the Confederation of British Industry's annual conference.
Spain's bond yields rose on Monday despite a clear-cut weekend election win for conservatives committed to tougher austerity. Meanwhile, the euro zone debt crisis appeared to be spreading to the heart of the currency bloc as ratings agency Moody's warned on France's credit rating.
British government debt has largely been treated as a safe haven by investors, keeping down borrowing costs despite a rapidly darkening growth outlook that will make it increasingly hard for the country to meet its debt reduction targets.
The Bank of England restarted its quantitative easing programme last month, and predicted last week that the economy would struggle to grow at all for most of next year.
Retailers have been a major casualty of the gloom. The British Retail Consortium said on Tuesday that the number of shoppers fell in the three months to October at its fastest rate since last December's heavy snow.
Cameron acknowledged that wrestling down Britain's budget deficit -- which totalled more than 10 percent of GDP when he came to power in May 2010 -- was proving tougher than expected.
Getting debt under control is proving harder than anyone envisaged. High levels of public and private debt are proving to be a drag on growth, which in turn makes it more difficult to deal with those debts, he said.
But this also undermines further the case for adding to the national burden of debt with even more borrowing, the Conservative leader added.
Cameron said it was essential that Britain reduced its trade deficit and focussed more on exports for sustainable growth in future, a point also emphasised by trade minister Stephen Green.
We've got to see this as something of a national challenge and stick at it. This is where growth is going to come from; it ain't going to come from the consumer, it can't come from racking up more debt, Green told Reuters at the CBI event.
The government is aiming to strengthen Britain's economy over the longer-term by plugging gaps in the country's patchy infrastructure and skills base.
Cameron said Chancellor George Osborne would announce incentives for infrastructure investment in his autumn statement on November 29, and also that he was reviewing rates of air passenger duty, a potential hindrance to trade.
The housing market plan announced earlier on Monday involved support for new mortgages for up to 100,000 people otherwise unable to buy homes, by indemnifying banks which approve mortgages worth 95 percent of a property's value. There would also be 400 million pound investment fund to support small and medium-sized home builders.
Cameron also lauded news that British energy company Centrica had bought a string of gas production assets from Norway's Statoil on Monday and signed a 10-year gas purchase deal, boosting its production by a quarter.
(Reporting by Keith Weir and Fiona Shaikh, writing by David Milliken; Editing by John Stonestreet/Ruth Pitchford)