UK must cut debt or face obscurity - PM Cameron

By Matt Falloon

BIRMINGHAM, England, Oct 10 (Reuters) - Britain must cut its budget deficit and fix its economy or face long-term decline, Conservative Prime Minister David Cameron will say on Wednesday, seeking to convince voters that his austerity plan is the only way forward.

Cameron's Conservatives, who lead a coalition government with the Liberal Democrats, lag a revived Labour opposition in opinion polls and face criticism for steering Britain back into recession and failing to hit their deficit reduction targets.

Labour accuse the government of contributing to the recession by cutting spending too fast, but the coalition argues its dedication to austerity has kept borrowing costs low and saved Britain from the claws of the Europe's debt crisis.

Cameron will bring Britain's political conference season to a close with a personal speech to his party that aides say will give an honest assessment of the economic challenges ahead and draw clear dividing lines with Labour.

"Unless we act, unless we take difficult, painful decisions, unless we show determination and imagination, Britain may not be in the future what it has been in the past," Cameron will tell the Conservatives in the central English city of Birmingham.

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

Cameron will say Labour's call for a slower pace of deficit reduction would "hurt the economy".

"The risk is that the people we borrow money from would start to question our ability and resolve to pay off our debts," he will say, according to extracts of his speech released in advance by his office.

The International Monetary Fund cut its growth forecasts for Britain on Monday and said the coalition may have to defer some cuts if the economy weakened further, casting a shadow over a conference that Cameron had hoped to use to rally his party.

Finance minister George Osborne has already been forced to water down his plans to all but erase a record budget deficit by the 2015 election because of a weak economy, stretching the period of austerity to seven years from five years.

Osborne is expected to either have to announce deeper cuts or further extend the timeline of spending cuts on Dec. 5 when he updates official economic and borrowing forecasts.

Credit ratings agencies have given triple-A rated Britain the benefit of the doubt so far, largely because the government has stuck with strong rhetoric on its determination to cut the deficit even if it has missed its austerity targets.

(editing by Ron Askew)