Cameron and Osborne: no U-turn on economy

David Cameron and George Osborne will insist today there can be no turning back from their economic strategy and deep spending cuts despite growing fears of a double-dip recession.

In separate speeches at the World Economic Forum in Davos, the Prime Minister and the Chancellor will admit there is a long haul ahead but rule out a U-turn following this week's gloomy figures showing the economy contracted by 0.5 per cent in the last three months of 2010. However, their fightback suffered a blow last night when the monthly GfKNOP consumer confidence index dropped to eight points to -29, its lowest level for a year and the biggest fall since the middle of the 1992 recession.

In today's speech, Mr Cameron will soften his previous claim that Britain is out of the "danger zone". He will warn that it will not be easy to transform the country's economy but will insist: "Those who argue that dealing with our deficit and promoting growth are somehow alternatives are wrong. You cannot put off the first in order to promote the second."

The Prime Minister will add: "We can't just flick on the switch of government spending or pump the bubble back up. Making this transformation – and it is a transformation – requires painstaking work and it takes time. It involves paying down billions of pounds of debt... It's going to be tough – but we must see it through.

"The scale of the task is immense, so we need to be bold in order to build this economy of the future. The British people know these things. They understand there are no short cuts to a better future."

Insisting progress is being made, Mr Cameron will say: "In the past eight months we've seen our credit rating – which was on the brink of being downgraded – affirmed at the triple A level. We've seen market interest rates – which were in danger of spiralling – actually fall. All this has happened not in spite of our plan to cut the deficit, but because of it. That's why we must stick to the course we have set out."

Mr Osborne will declare: "The challenge is formidable, but the future will favour the bold. And if we are bold enough the prize will be worth the effort: nothing less than a new model of sustainable growth." In an attack on his Labour shadow, Ed Balls, the Chancellor will say: "The ambition of my Budget [in March] will be to turn the tide on the forces of stagnation."

Vince Cable, the Liberal Democrat Business Secretary, was upbeat about the economy despite Tuesday's figures. "Tax receipts were very robust – that's one of the reasons why the Government is optimistic," he said yesterday.

Mr Cable said ministers were also heartened by evidence of a sustained recovery in manufacturing and exports, and pointed to growth of 33 per cent in the motor industry in the past year. But he warned that petrol would remain expensive, with a knock-on effect on inflation, because of demand in Asia. But he sounded a sceptical note over whether the Government could bring in a fuel stabiliser to even out the effect of changes in the price of petrol.

Mr Cable reacted coolly to the disclosure yesterday by Mr Osborne that ministers could "override" the planned 1p rise in fuel duty in April. The Business Secretary said any change to current plans would be expensive – and the money would have to be raised elsewhere.