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LONDON (Reuters) - Britain would damage its fragile economy and risk isolation if it ended its often stormy relationship with the European Union, business leaders said on Monday before critical EU budget talks later this week.
Britain's main business lobby group urged Prime Minister David Cameron to resist growing "Eurosceptic" calls to cut the island nation's 40-year ties with a bloc that accounts for half of its trade.
With the anti-European mood growing, opposition Labour leader Ed Miliband pledged not to let Britain "sleepwalk" towards an EU exit that he said would be bad for prosperity and a betrayal of Britain's national interests.
Anti-EU lawmakers in Cameron's own Conservative party have urged him to take a hard line in the budget talks and resist EU demands for a real increase.
They sided with the usually pro-EU opposition Labour Party late last month in a parliamentary vote calling for a real-terms EU budget cut, an embarrassing defeat for Cameron.
Britain, a member of the 27-nation bloc since 1973 but not of its single currency, has long had an ambivalent relationship with the EU.
The next general election is due in 2015 and Cameron, trailing in the polls during a painful austerity drive, has threatened to veto the EU's long-term budget plans. He has called for a real-terms spending freeze that reflect the economic hardship facing millions of people across Europe.
"It is like many relationships: can't live with you, can't live without you," Roger Carr, president of the Confederation of British Industry, said in a speech at the CBI's annual meeting. "Whatever the popular appeal may be of withdrawal, businessmen and politicians must keep the bridge to Europe firmly in place."
Describing Europe as the "bedrock of our international trade", Carr said the European single market is a crucial export market as well as a strong base for Britain's trade with the rest of the world.
The euro zone debt crisis has rekindled an anti-European mood in Britain and emboldened politicians to talk of clawing back powers from Brussels, or even leaving the bloc altogether.
British Eurosceptics, who see the EU as an oppressive, wasteful superstate that threatens Britain's sovereignty, want a referendum on whether to stay in the EU. Cameron opposes a straight "in or out" question but has hinted he would support a national vote on a renegotiated British role.
More than 50 Conservative rebels defied Cameron to vote with Labour to call for a real-terms cut in EU spending in a stinging parliamentary defeat for the government on October 31.
Criticised by some in Europe for a lukewarm approach to the EU, Cameron said his calls for tighter spending controls made him "a good European".
"I feel I have got the people of Europe on my side in arguing that we should stop endlessly picking their pockets and spending more and more money through the EU budget," he said in a speech to the CBI's annual conference.
Labour's Miliband, accused of opportunism for backing the Conservative rebellion over Europe in parliament, said he would not allow Britain to "sleepwalk toward (an EU) exit". Labour has been broadly pro-European in recent years.
Betting agency William Hill offered odds of 10-1 that Britain will be out of the EU by 2020.
Cameron's spokeswoman said Britain, a net contributor to the EU budget, thinks a deal can be reached.
"The prime minister believes we can work through these details to get the right deal at this week's summit and we're ready to do that," the spokeswoman said, adding that Cameron had been "hitting the phones" speaking to other EU leaders.
The positive language on prospects for an agreement are in marked contrast to Cameron's comments earlier this month in which he said he did not have "very high hopes" on what he called "ludicrous" budget proposals.
The spokeswoman gave no reason for the change in tone. But she said Cameron had in recent days spoken to leaders in Poland, Sweden, Denmark, France, Germany and the Netherlands, and would be calling other EU leaders in the coming days.
Additional reporting by Guy Faulconbridge and Matt Falloon; Editing by Mark Heinrich