'Difficult times ahead' for economy, says David Cameron

A warning of difficult times ahead for the British economy was issued by David Cameron today (Reuters)

A warning of difficult times ahead for the British economy was issued by David Cameron today amid mounting international pressure for action by the eurozone to resolve its debt crisis.

The Prime Minister said there was "a big question mark" over the future of the single currency and he could not rule out a "double-dip" recession in the UK as a result.

As Italy began passing stark austerity measures and Greece swore in a new cabinet, the US was leading demands for swift action on implementing emergency plans agreed in October.

President Barack Obama spoke by phone with German chancellor Angela Merkel, French president Nicolas Sarkozy and Italian president Giorgio Napolitano last night.

Labour criticised Mr Cameron's lack of involvement in the talks and attacked the Government for a "grossly irresponsible" attempt to blame the eurozone for Britain's stalled growth.

In a radio interview, Mr Cameron said he was doing whatever he can to get Britain "safely through the storm" but noted that a series of forecasters have predicted slowing growth over coming months.

Britain faced "a difficult time because of what is happening in the eurozone."

"These are very worrying times, I can't hide that from you. It is a very difficult time for the eurozone," he told BBC Radio 2's Jeremy Vine.

"There is real turbulence in the markets, real question marks over whether countries can deal with their debts and a big question mark over the future of the eurozone.

"Our responsibility, my responsibility, is of course to try to help bring about a solution to these problems, but above all my priority is to try to keep the British economy safe."

Downing Street said Mr Cameron has not spoken to Mr Obama or his European counterparts over the past few days and has no plans to do so over the weekend.

"We have been talking to all these people in recent weeks," said the Prime Minister's spokesman.

"The responsibility lies with the eurozone to implement the package it has agreed."

Labour said he appeared to be "sitting on his hands and saying it's nothing to do with him".

Earlier, the upper house of Italy's parliament passed a key package of economic austerity measures intended to restore stability to its troubled economy.

The move clears the way for Silvio Berlusconi to step down as prime minister as early as this weekend and make way for technocrat Mario Monti, in a move aimed at restoring market confidence.

Italy has seen bond yields soar above 7% as traders took fright over its ability to pay its debts, a level at which many experts believe the cost of state borrowing becomes unsustainable.

However as Italian rates rocketed, the yield on the UK 10-year gilts reached a historic low of 2.106% yesterday, which Downing Street said reflected the market's view of Britain as a "safe haven".

Shadow chancellor Ed Balls told BBC Radio 5 Live: "Our Chancellor's head is buried in the sand.

"The Prime Minister only wants to blame the eurozone. This will not work. It is grossly irresponsible and we need a change of course."

Mr Balls also called for the European Central Bank (ECB) to play "a much bigger role" in sheltering Italy from the markets, amid reports that Germany is refusing to allow it to act as a lender of last resort for fear of triggering inflation.

"If you have a single currency in these circumstances where contagion is spreading, the central bank must be the lender of last resort," said the shadow chancellor.

"Germany must say 'we back the central bank to do what it takes' and the central bank must say 'we will stop this crisis spreading to Italy'."

In Athens, Greece's new technocrat Prime Minister Lucas Papademos took control of an interim coalition government of three parties tasked with pushing through a tough reform package.

Mr Papademos, was at one time a vice president of the ECB and Mr Monti is an economist and ex-European commissioner.

Deputy Prime Minister Nick Clegg said the technocratic governments being installed in Greece and Italy should only be "temporary".

"It would be a very bad precedent indeed if it was felt that somehow democratically-elected governments can't sort out the things for which they've been elected," he said.

The chairman of the Commons European Scrutiny Committee, Conservative MP Bill Cash, warned that Europe was suffering the results of an "undemocratic" system in which Germany was "predominant".

Mr Cash told BBC Radio 4's Today programme: "This is an undemocratic system, this is the problem and the people are protesting all over Europe, youth unemployment at 47%, this is a failed project."

PA