David Cameron has dismissed calls for a borrowing-fuelled capital spending drive, warning it would leave families facing devastating interest rate hikes.

The Prime Minister insisted the coalition would stick to its economic strategy despite Business Secretary Vince Cable suggesting it was time for a rethink.

Writing for the New Statesman, the Liberal Democrat suggested "the balance of risk" had changed between deficit reduction and growth.

He questioned whether the Government should "borrow more, at current very low interest rates, in order to finance more capital spending: building of schools and colleges; small road and rail projects; more prudential borrowing by councils for house-building".

But giving a pre-Budget speech in West Yorkshire, Mr Cameron said there was no "magic money tree" that allowed the Government to spend and borrow more.

"There are some people who think we don't have to take all these tough decisions to deal with our debts," he said. "They say that our focus on deficit reduction is damaging growth. And what we need to do is to spend more and borrow more. It's as if they think there's some magic money tree. Well, let me tell you a plain truth: there isn't."

The premier said the loss of the UK's prized AAA credit rating last month had been "the starkest possible reminder of the debt problem we face".

"If we don't deal with it, interest rates will rise, homes will be repossessed and businesses will go bust, and more and more taxpayers' money will be spent just paying off the interest on our debts.

"Even just a 1% rise in mortgage interest rates would cost the average family £1,000 in extra debt service payments. So, there's not some choice between dealing with our debts and planning for growth."

Mr Cameron said the Office for Budget Responsibility (OBR) had made clear the financial crisis, eurozone woes and high oil prices were largely to blame for the economy stalling. "Tackling the deficit is the first essential step for growth. And if we don't do it, we'll end up facing even greater austerity," he said.