Cameron looks to reshuffle to revive fortunes

Prime Minister David Cameron leaves Downing Street in London August 2, 2012.

LONDON (Reuters) - Prime Minister David Cameron is expected to reshuffle his cabinet early next month, hoping fresh faces will appease his party's restive right and reboot a government half way through a recession-hit term.

Britain's dismal economic performance has triggered calls for Cameron to replace Chancellor George Osborne with Foreign Secretary William Hague - a move which could give cover for a softening of Cameron's flagship austerity plans.

But few expect any thunderbolts in the shakeup and Cameron's first planned reshuffle may struggle to make a lasting impression on his diminished popularity ahead of the next parliamentary election in 2015.

Insiders say he is more likely to focus on filling more junior posts with supporters and figures popular with grassroots members of his Conservative party.

Westminster sources point to no change at the Treasury, the Foreign Office or interior ministry, reflecting the need for stability during an economic crisis and Cameron's fear of alienating his party's more dominant figures.

"All the big ones (ministers) are meant to be staying - that's what I've been hearing - but there will be a number of promotions," one government official said, reflecting the thrust of speculation.

Cameron's hands are tied to some extent by the realities of life in a coalition government with the Liberal Democrats, who require a certain number of cabinet posts and must be kept on side to ensure the partnership survives.

ALLIES AND EUROSCEPTICS

A big sweep out would create more problems than it solved.

Removing Osborne would humiliate one of Cameron's closest allies and risk the emergence of a lightning rod for opposition.

It would also be read as an admission of failure in economic policy and unsettle financial markets at a time when Britain is clinging to its top notch credit rating by a thread.

A new chairman plucked from the populist heart of the party could help convince doubters Cameron was a "true blue" Conservative with traditional values rather than the middle-of-the-road liberal some fear him to be.

Loyalists such as Matt Hancock, a former adviser to Osborne, could be in line for promotion to junior ministerial positions.

David Laws, the highly regarded Lib Demo who quit his job over an expenses scandal just a few weeks after becoming Osborne's number two in 2010, is expected to return to a ministerial role with an economics brief.

His presence would bolster the government's economic clout and strengthen the junior coalition party - which has failed to win many concessions from an increasingly awkward partnership with the Conservatives - in any policy negotiation.

Any dreams of a bounce from Britain hosting the Olympics faded as London's extrovert Conservative Mayor Boris Johnson, tipped as a future party leader, took every opportunity to upstage Cameron by flaunting himself in front of the media.

"A reshuffle is a good opportunity for the prime minister to reassert his authority and make it clear he is in charge after quite a sticky summer," said Justin Fisher, a professor in political science at London's Brunei University.

"It can shore him up with cheerleaders and reward those who have stuck up for him, but his room for man oeuvre is limited."

If Osborne, Hague and interior minister Theresa May all stay put, as expected, Cameron could show some steel by moving 72-year-old Justice Secretary and former finance minister Ken Clarke - a prominent pro-European Conservative.

Such a switch would please the potentially dangerous "eurosceptic" wing of the party who complain Cameron has failed to deliver a tough enough line in Brussels. It would also create room to promote a high flyer from within the cabinet.

A job for one or two of the party's anti-European Union activists could calm a Conservative flank that helped to bring about the downfall of former leaders such as Margaret Thatcher.

But too many eurosceptics in positions of power could make life tricky for Cameron, who wants Britain to remain in the European Union and must keep the pro-Europe Lib Demas on side.

"There is some discontent among Conservative backbencher and activists about the direction of Cameron's government," said Ryan Short house, director of the progressive Conservative think tank Bright Blue. "The prime minister might therefore be tempted to promote people from particular groups or wings of the party."

"This should be resisted. Cameron needs people in the cabinet and in ministerial posts who are committed to, and can give a fresh boost to, the coalition agenda."

(Editing by Andrew Heavens)