UPDATE 1-British PM tells country more pain to come

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

* 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 Prime Minister David Cameron warned voters to brace for "painful decisions" on the economy on Wednesday but offered little new to alter a grim growth outlook which has derailed his efforts to cut the budget deficit.

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

Cameron, insisting his coalition government would not waver from its austerity plan to erase the budget deficit, said failing to get on top of Britain's economic problems would leave it limping along a path to long-term decline.

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

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

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

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

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

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 as it has missed its targets.

"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 warned.

"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."


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

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

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

Labour leader Ed Miliband's surprise evolution into a more credible opponent has given Cameron - who has struggled to compete for attention this week with the party's effusive and popular London Mayor Boris Johnson - another headache.

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

"The old powers are on the slide. What do the countries on the rise have in common? They are lean, fit, obsessed with enterprise, 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 on unaffordable welfare systems, huge pension bills, unreformed public services."

Aware of criticism the Conservative leader has struggled to communicate what he, and his government stands for, Cameron delved 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 the community too," he said.

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

Labour and the Liberal Democrats want to see the wealthy do more to help Britain get on top of its deficit, currently running 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 wing on Britain's relationship with the European Union, an issue that has contributed to the downfall of the previous two Conservative premiers - John Major and Margaret Thatcher.

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

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

(Additional reporting by Guy Faulconbridge; editing by Patrick Graham)