Cameron and Osborne seek to move the agenda forward

David Cameron, the Prime Minister, and George Osborne, the Chancellor, yesterday sought to put the two biggest economic controversies of the Coalition Government's term in office behind them, insisting that their austerity measures would not derail the recovery and that Britain's banks would play their part in seeing the upturn accelerate.

The pair used a visit to the World Economic Forum in Davos, Switzerland, to set out their case, with the Prime Minister insisting that this week's economic data, which revealed a shock fall in GDP during the fourth quarter of last year, did not mean the Government's package of austerity measures had been a mistake.

"Given the traumas of recent years, the recovery was always going to be choppy," Mr Cameron said, adding that there was no choice but to stick with the plan.

"Our first priority is to kill off the spectre of massive sovereign debts – those who argue that dealing with our deficit and promoting growth are somehow alternatives are wrong."

While Mr Cameron's argument has been contradicted by several leading figures at Davos this week, most notably the financier George Soros and the US Treasury Secretary Timothy Geithner, his message was repeated by Mr Osborne, who said: "It is no surprise that one disappointing, weather-affected quarter of growth has brought the critics out of the woodwork."

However, both men sought to move the debate forward yesterday, with Mr Cameron outlining a vision of how Britain's economy might be rebalanced to leave it less reliant on financial services and the South-east.

"Think of where we need to go," Mr Cameron said, promising that the Government would soon publish a new strategy for growth.

"[We need] an economy based not on consumption and debt but on savings and investment, not on government spending but on entrepreneurial dynamism, not on one industry in one corner of the country but on all our businesses in all our regions, with a new emphasis on manufacturing, exports and trade."

In a separate session of the WEF, Mr Osborne said it was time to "move on" from the hostility directed at the banking sector – but only if a deal could be reached with the City on pay and bonus restraint, and on greater support for the economy in the form of more lending.

The Chancellor also promised that while Vince Cable, the Business Secretary, was working on the Government's growth strategy, his Budget, due in less than eight weeks' time, would lay some of the foundations required. "The ambition ... will be to turn the tide on the forces of stagnation."

However, the two men face criticism as they return to the UK, with Brendan Barber, the general secretary of the Trades Union Congress, insisting that the latest growth statistics proved the austerity strategy was misguided. "With the economy tanking even before the cuts and VAT rise start to bite, the Chancellor must accept that his gamble has failed to pay off," Mr Barber said.

The think-tank Capital Economics also warned that it was time to at least start thinking about other options. "If the economy were to head into a more serious downturn, the case for the Government to rethink its plans would soon start to look more convincing," it said. "Accordingly, the Coalition would do well to start thinking about possible contingency plans."