Prime Minister Gordon Brown is preparing a new legislative programme focusing on the economy, health, education and constitutional reform, to fight back as soon as next week after a drubbing in local elections.
Brown's official spokesman said on Friday there had been lengthy discussions at cabinet earlier this week over the draft programme. Last year, it was published in July but there was a desire to put it out earlier to allow more time to consult.
"The PM has made clear the economy is the key issue," Brown's spokesman said.
The prime minister is also expected to come up with new proposals on health, education and constitutional reform but no details were available.
Dogged by a slowing economy, falling house prices and party in-fighting, Labour on Friday looked on course to suffer its worst local government election defeat in 40 years.
Brown admitted it had been a bad night for the government. "My job is to listen and to lead and that is what I will do," he said as the scale of Labour's losses became clear.
While Brown may be hoping this will help him regain the political initiative, analysts say he may be doomed unless the economy turns in time for a national election which must be called by mid-2010.
The former chancellor said on Friday that difficult economic circumstances had hurt Labour in this week's elections, adding that people would come to realise the government was taking the right steps over the next few months.
The economic news, however, remains grim. House prices fell at their fastest annual rate in 15 years, a survey showed on Friday, raising fears of a severe downturn this year.
One Bank of England policymaker said this week that prices could fall by 30 percent over the next two or three years - political dynamite in a country where two-thirds of households own their homes.
