LONDON (Reuters) - Dealing with high levels of government borrowing will help the global economy to recover from the financial crisis, British Prime Minister David Cameron said yesterday.

Britain's Conservative-Liberal Democrat coalition government is embarking on the toughest deficit reduction for decades, attempting to all but eliminate borrowing worth 11 percent of national output within five years.

Cameron has hailed as a victory a G20 agreement this weekend that nations should tailor their deficit plans to individual circumstances, seeing it as a vindication of his own policies.

"The argument proposed by some that deficit reduction and growth are mutually exclusive is, in my view, completely wrong," Cameron told parliament, updating lawmakers after the G8 and G20 summits in Canada.

There had been fears of a rift over fiscal policy at the summits, given calls from the US for nations to be patient in dealing with debt to avoid derailing the global recovery.

The Conservative-led coalition in Britain has said it hopes to unleash a private sector-driven revival and is looking to the Bank of England (BoE) to support growth while the government slashes spending and hikes taxes.

"Tightening fiscal policy, as we should, should be accompanied by a loose monetary policy," Cameron said. "That is why the positive response the Bank of England has made to the budget...is so encouraging."

The coalition's emergency on June 22 budget proposed spending cuts at government departments of around 25 percent as well as a range of tax increases including raising VAT sales tax to 20 percent from 17.5 percent.

However, while BoE chief Mervyn King has made no secret of his desire to see the deficit dealt with, one Monetary Policy Committee member is already voting for interest rate rises, raising fears the economy may not get the central bank boost that politicians are hoping for.

Andrew Sentance, whose vote for a rate hike this month was the first by a BoE policymaker since August 2008, told Reuters in an exclusive interview yesterday that the tough emergency budget did not remove the need for higher rates.