David Cameron late last night pledged to ensure that Britain would remain a “major player” on the world stage, despite the need for swingeing defence cuts and the rise of competing economic powers like China and India.

Delivering the annual Guildhall speech on foreign policy, the Prime Minister rejected suggestions that the UK was on an “inevitable path of decline” and that its claims to be a major military power were a “sham”.

However, he stressed that Britain’s position internationally would be undermined unless it succeeded in getting the public finances in order and that it needed to be more “hard-headed” in pursuit of the UK national interest.

“When some people look at the world today they are quick to prophesy dark times ahead; difficulties for Britain. Our foreign policy runs counter to that pessimism. We have the resources – commercial, military and cultural – to remain a major player in the world,” he said.

“We are choosing ambition. Far from shrinking back, Britain is reaching out. And far from looking back, starry-eyed, on a glorious past, this country can look forward, clear-eyed, to a great future.”

However, Labour said that Britain had played a diminished role in international affairs since the coalition came to power in May, lacking any strategy for global economic co-operation to ensure the recovery.

“David Cameron is playing the spectator not the statesman on the international stage,” said shadow foreign secretary Yvette Cooper.

“The reality of the Prime Minister’s foreign policy so far is a shrivelled role for Britain in the world at the expense of British interests.”

Mr Cameron, who has just returned from visiting China and the G20 in Seoul, insisted the UK remained a “great economic power” and that he was determined to ensure that foreign policy would “focus like a laser on defending and advancing Britain’s national interest”.

“What I have seen in my first six months as Prime Minister is a Britain at the centre of all the big discussions,” he said.

“Producing the ideas, consulted for our experience and respected for the skills we bring and our capacity to find solutions. So I reject the thesis of decline.”

Addressing the state of the nation’s finances, he said that paying down the record deficit was “as important a foreign policy priority as it is a domestic one”.

“We need to sort out the economy if we are to carry weight in the world. Economic weakness at home translates into political weakness abroad,” he said.

The Government’s determination to tackle the deficit was, he said, appreciated by fellow world leaders who did not see Britain “shuffling apologetically off the world stage”.

“On the contrary, they respect our determination to get our economic house in order so we can remain masters of our nation’s destiny,” he said.

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