UPDATE 2-Britain must cut more to reduce deficit- PM Cameron

* Deficit target means more cuts to come - Cameron

* EU must live within means or face UK veto on budget

(Adds Cameron quote)

BIRMINGHAM, England, Oct 7 (Reuters) - Britain must findmore spending cuts to reduce the budget deficit, Prime MinisterDavid Cameron said on Sunday, after a return recession this yearraised speculation the government was set to miss its owndeficit reduction targets.

Cameron, in an interview with the BBC, also said he woulduse Britain's veto to scupper European Union budget talks ifnecessary, warning the 27-nation bloc it needed to learn to livewithin its means.

The prime minister said his Conservative-led coalitiongovernment was determined to stick to its plan to erase what wasa record budget deficit when he came to power in 2010.

Asked if Liberal Democrat Deputy Prime Minister Nick Cleggwas correct to say that whoever won the 2015 election would haveto introduce another tranche of austerity because of the size ofthe problem, Cameron said:

"Yes, he is right and actually it happens before thatbecause we have to find 16 billion pounds of spending reductionsfor the year 2015-16. It starts before the general election andwe need to do that," Cameron said.

"I want us to be the party that absolutely levels with theBritish public and talks very plainly and straightly about whatneeds to be done because the fact is we have to find thosespending reductions."

The government delivers new economic and borrowing forecastson Dec. 5. Finance minister George Osborne said in an interviewwith the Mail on Sunday that Britain faced further cuts after aweaker than expected performance by the economy this year.

Cameron said Britain had cuts its deficit by a quarter intwo years but it was too early to say what the figures for 2012would be. Asked whether Britain would have to reduce welfarespending, he said: "We have to look at things like the welfarebudget... We have capped welfare but we need to go further."

Cameron suggested the EU should at some point split itsbudget into two - one for the euro zone and one for thecountries outside the single currency, including Britain.

Cameron, much to the delight of a powerful anti-EU wing ofhis Conservative Party, used the veto last year to keep Britainout of a European fiscal and economic pact aimed at resolvingthe euro zone debt crisis.

"People in Europe know I mean what I say. I sat round thattable, 27 countries, 26 of them signing up to a treaty, and Isaid this is not in Britain's interest, I don't care how muchpressure you put on, I'm not signing, we are not having it. Theyknow what I am capable of saying, no, and If I don't get a gooddeal I'll say no again.

(Reporting by Guy Faulconbridge, Matt Falloon and Tim Castle;Editing by Jon Boyle)