David Cameron: European and US risks to economy

But the Prime Minister said he remained convinced that the Government was right to seek to eliminate the UK's structural deficit by 2015, and pointed to independent forecasts of GDP growth over the coming years from the Office for Budget Responsibility.

He played down reports of tensions with Liberal Democrat Cabinet members such as Business Secretary Vince Cable over cuts, insisting that he was "heartened" by the way all ministers had agreed the necessary action.

Mr Cameron said: "The forecasts from the OBR are positive, but of course there are risks to the British economy: What will happen to the American recovery?; how strong is the recovery in Europe?; how well is bank lending going?

"There are lots of moving parts we have to keep a very close eye on."

Mr Cameron said he thought interest rates were a more important tool than tax and spending policy for reviving economic growth.

"I have always believed that actually it is monetary policy that is a better lever in terms of trying to make sure that the economy is progressing and demand is growing," he said.

"I have always been a fiscal conservative and a monetary activist, and I think there is quite a lot of support from the IMF for that stance, and that is where we should be focused."

Mr Cameron acknowledged that there were "difficult" discussions going on within Government ahead of Chancellor George Osborne's spending review on October 20, in which he will detail cuts totalling £83 billion over the coming four years.

"The conversations we are having in the spending review process are difficult, because we have got difficult decisions to make on welfare, on higher education, on education," said Mr Cameron.

"It is an incredibly difficult thing we are trying to do. I have been heartened by the fact that ministers are coming to it with a very positive frame of mind, trying to work together to get a good outcome.

"On higher education, I may be speaking too early but the signs are good that Conservatives and Liberal Democrats have come together in a coalition and instead of trying to do the baseline easy thing are trying to do the big, right and difficult thing. So there aren't, I hope, too many tensions."

Mr Cameron also dismissed comparisons of Britain with Ireland, which has returned to negative growth after imposing a tough package of public spending cuts to reduce its deficit.

He said the UK, because it had stayed outside the euro, was able to pursue a monetary policy on interest rates designed to support its own economy.