British PM Cameron makes cabinet changes, but keeps finance minister

British Prime Minister David Cameron kept his unpopular finance minister George Osborne in a cabinet reshuffle on Tuesday he hopes will revive the Conservative-led government's fortunes in the middle of a term dominated by recession.

Cameron's office billed his first political rejig as a game changer for a government finding it increasingly difficult to heal the economy, but heavyweights such as Foreign Secretary William Hague stayed put and few changes are expected in policy.

The prime minister's scope for a sweeping overhaul is limited by the constraints of life in coalition with the left-leaning Liberal Democrats and the danger of creating enemies among his own Conservatives at a delicate time.

Osborne, a close Cameron ally, was booed by crowds before he presented medals to Paralympics winners on Monday night, highlighting discontent with budget cuts that have repeatedly missed the government's targets and the general economic gloom.

"He's definitely staying put," a source familiar with the reshuffle discussions told Reuters.

Polls show many Britons think Osborne should be sacked. But replacing too many senior ministers could be interpreted as an admission of policy failure, particularly on the economy.

Government officials had argued that shifting Osborne from his post would raise questions on financial markets about Cameron's resolve in tackling Britain's large budget deficit.

Cameron, who has seen his party's popularity fall as the economy sours, has stuck to his guns with austerity, hoping growth will return before the next election in 2015.

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The dire state of the economy forced the prime minister to at least tinker with his economic team, however, moving 72-year-old Justice Secretary Ken Clarke - a former finance minister - to a floating role with an economics brief.

Lib Dem David Laws, another respected economic brain, was expected to be handed a ministerial job.

The reshuffle is being seen more as an exercise in improving Cameron's relationship with a party starting to fear for its chances of re-election. Figures from the Conservative right were promoted and concessions made to a rebellious "eurosceptic" wing which demands a tougher line on Brussels.

Clarke's move, in effect a demotion for one of the most outspoken pro-Europe Conservatives, was cheered by a potentially eurosceptic flank which has previously plotted the downfall of former Conservative leaders such as Margaret Thatcher.

"The end of the coalition would have been the ideal reshuffle but, compared to where I thought we would be today, we are in a very much stronger position - you can see the Conservative-ness of this government," said Conservative lawmaker Peter Bone.

"We've seen a tilting towards a more Conservative cabinet."

Clarke said Cameron was "not remotely" bowing to pressure to push his part of the government to the right.

The biggest promotion came for former Culture Secretary Jeremy Hunt, who took over what he called the "huge task" of selling the government's controversial reforms at the health ministry to a skeptical public and medical profession.

Hunt survived calls to quit this year for his handling of Rupert Murdoch's attempt to take over British broadcaster BSkyB.

Cameron switched Justine Greening from transport to international development, removing her from the debate over whether the government should build a third runway at London's Heathrow airport, bitterly opposed by residents in her nearby parliamentary constituency.

The move reignited speculation that a third runway - which the coalition has pledged to reject - could be back on the cards.

Financial markets, watching for any sign of a rethink of Britain's austerity plan, brushed aside the reshuffle.

"It is all political rather than economic," said Bank of America Merrill Lynch fixed income strategist John Wraith.