UPDATE 1-British PM tells country more pain to come

* Cameron: euro zone making it harder to cut deficit, groweconomy

* UK PM says won't waver from austerity despite IMF warning * Conservatives lag Labour in polls ahead of 2015 election(Adds quotes, details) By Matt Falloon and Mohammed Abbas

BIRMINGHAM, England, Oct 10 (Reuters) - British PrimeMinister David Cameron warned voters to brace for "painfuldecisions" on the economy on Wednesday but offered little new toalter a grim growth outlook which has derailed his efforts tocut the budget deficit.

In a speech to his Conservative party conference, Cameronadmitted it was taking longer than planned to fix Britain'srecession-hit economy and rein in public finances.

Cameron, insisting his coalition government would not waverfrom its austerity plan to erase the budget deficit, saidfailing to get on top of Britain's economic problems would leaveit limping along a path to long-term decline.

The Conservatives, in coalition with the smaller LiberalDemocrats, have fallen behind a resurgent opposition Labour inopinion polls. Analysts say Cameron faces an uphill slog to winan outright majority in the 2015 election.

The International Monetary Fund slashed its growth forecastsfor Britain on Monday, casting a shadow over the Conservatives'annual conference where Cameron hoped to rally his party andconvince voters his economic plans were the only way forward.

"Here's the truth," Cameron told an overflowing hall ofConservatives in the English city of Birmingham. "The damage wasworse than we thought, and it's taking longer than we hoped."

"The world economy, especially in the euro zone, has beenmuch weaker than expected in the past two years. When some ofour big trading partners like Ireland, Spain and Italy aresuffering, they buy less from us. That hurts our growth andmakes it harder to pay off our debts."

Most economists expect the government to announce lowergrowth forecasts in December, which could play havoc withCameron's deficit reduction plan and potentially force him tostretch out spending cuts well beyond the 2015 election.

Credit ratings agencies have given triple-A rated Britainthe benefit of the doubt so far, largely because the governmenthas stuck with strong rhetoric on its determination to cut thedeficit, even as it has missed its targets.

"Unless we act, unless we take difficult, painful decisions,unless we show determination and imagination, Britain may not bein the future what it has been in the past," Cameron warned.

"Because the truth is this: we are in a global race todayand that means an hour of reckoning for countries like ours.Sink or swim. Do or decline."


It has been a difficult year for Cameron, with critics inhis party raising questions about his style of leadership andwhether he has what it takes to win full control of Britain'sparliament - something he failed to achieve in 2010.

A return to recession, missed austerity targets, speculationof a leadership coup, infighting over Europe and a scandal overhis relationship with Rupert Murdoch's powerful media empirehave all contributed to a severe case of mid-term blues.

Aides to the leadership admit the party is running out ofroad to turn things around before the 2015 election which islikely to decided on the state of the economy and which party ismost trusted to fix Britain's deficit.

Labour leader Ed Miliband's surprise evolution into a morecredible opponent has given Cameron - who has struggled tocompete for attention this week with the party's effusive andpopular London Mayor Boris Johnson - another headache.

Cameron took Labour's argument, for a softer pace ofausterity to give the economy room to breathe, head on.

"The old powers are on the slide. What do the countries onthe rise have in common? They are lean, fit, obsessed withenterprise, spending money on the future - on education,incredible infrastructure and technology," he said.

"And what do the countries on the slide have in common?They're fat, sclerotic, over-regulated, spending money onunaffordable welfare systems, huge pension bills, unreformedpublic services."

Aware of criticism the Conservative leader has struggled tocommunicate what he, and his government stands for, Camerondelved into his personal life - and the story of his late,disabled father - to explain his ideology.

"Work hard. Family comes first. But put back in to thecommunity too," he said.

The Conservatives have spent this week warning voters toexpect cuts across the board after 2015, drawing a dividing linewith Labour by arguing for ambitious reductions in welfare - anarea often portrayed as rife with scroungers and waste.

Labour and the Liberal Democrats want to see the wealthy domore to help Britain get on top of its deficit, currentlyrunning at about eight percent of national output.

"I'm not here to defend privilege, I'm here to spread it,"the expensively-educated prime minister said.

Cameron sought to pacify a restive Conservative right wingon Britain's relationship with the European Union, an issue thathas contributed to the downfall of the previous two Conservativepremiers - John Major and Margaret Thatcher.

Promising a referendum on any new EU treaty that followsefforts to solve the euro zone debt crisis, Cameron has promisedthis week to use Britain's veto for a second time if EU leaderspushed for too big an increase in its budget.

Some Conservatives want an in/out EU referendum and forBritain to negotiate a new trade deal with Europe - its biggesttrading partner. Cameron argues that Britain should stay part ofthe EU but has promised to claw back powers from Brussels.

(Additional reporting by Guy Faulconbridge; editing by PatrickGraham)