UPDATE 1-Britain's Osborne promises budget of "hard truths" to balance economy
* Osborne says economic recovery not yet secure, unbalanced
* Osborne says must still confront problems in budget
* UK, China in talks about yuan clearing bank in London-Osborne
By William James and Grace Li
LONDON/HONG KONG Feb 20 (Reuters) - British finance minister George Osborne warned on Thursday he would deal with "hard truths" about Britain's unbalanced economic recovery in his annual budget next month, emphasising a need for more manufacturing exports.
He also said Britain was too reliant on consumer spending and on the finance industry in London.
Speaking in Hong Kong en route to the G20 finance ministers' meeting in Australia, he said Britain's economic recovery was not secure and more exports and business investment were needed - echoing the view of Bank of England Governor Mark Carney.
In a bid to increase trade and investment with the region, he said the British and Chinese governments were in active discussions about setting up a clearing bank for China's currency in London.
Osborne also stressed a need to keep pursuing an austerity agenda in order to reduce the country's budget deficit and bring the national debt down. The speech is likely to be one of his last before the budget statement on March 19.
The budget will be his final chance to meaningfully alter fiscal policy before a May 2015 election.
"This is not a budget where we can rest on our laurels and say 'job done'," Osborne told the British Chambers of Commerce in Hong Kong. "It is a budget where we must confront our problems and deal with some hard truths."
Osborne has to date been cautious not to be seen cashing in on the political capital generated by Britain's fastest rebound since the financial crisis for fear of stoking expectations that the government can afford to ease up on spending cuts.
He said that chief among Britain's problems is that the economy is unbalanced and too dependent on consumer spending.
"We cannot rely on consumers alone for our economic growth, as we did in previous decades," he said. "And we cannot put all our chips on the success of the City of London, as my predecessors did. Britain is not investing enough. Britain is not exporting enough."
The move to create a clearing bank for the Chinese currency in London will help its aim to become the Western centre of offshore yuan trading and should foster greater confidence among European companies to adopt it as a trade currency.
At present, London mainly relies on Hong Kong's offshore yuan infrastructure to obtain yuan liquidity and clearing service. Osborne also said that more British retailers, such as department store John Lewis, are going to start accepting payments in yuan.