LONDON (MarketWatch) — John Major, Britain’s prime minister in the 1990s, once quipped, “Europe is a wolf coming up the path to devour the Conservative Party.” The creature seems to be getting hungry again, judging by ferocious battling on Britain’s membership in the European Union now driving a wedge among the supporters of David Cameron.

The U.K.’s present-day prime minister accomplished what seemed a coup in January by announcing a referendum on Britain EU membership possibly in 2017 — an attempt to carve out much-needed political maneuvering room by heading off sweeping popularity gains by the nationalist UKIP party.

Britain's Prime Minister David Cameron Reuters

Four months later, the policy has backfired. Cameron is on the ropes at the hands of two politicians called Nigel, a quaint and quintessentially British name habitually applied to men who are lovable rogues. UKIP, led by telegenic former commodity broker Nigel Farage, accomplished a widespread victory in British municipal elections at the beginning of May.

Qualms about a future governance arrangements for economic and monetary union (EMU), on the grounds that the U.K. cannot possibly sign up to the tighter form of union needed to make the euro work, are driving fresh opposition to Britain’s European links.

And two senior former conservative ministers made Cameron squirm last week by calling on Britain to quit. The best known is Nigel Lawson, chancellor of the exchequer [treasury secretary] between 1983 and 1989 under Prime Minister Margaret Thatcher, a man who once described EMU as akin to the Soviet Union’s feat of putting Yuri Gagarin into space: a remarkable achievement of uncertain benefit.

A month after the death of Thatcher, 81-year-old Lawson has now become the country’s most exalted Thatcherite heir by arguing there was now a “clear” case for British withdrawal from the EU, since the economic benefits would “substantially outweigh the costs.”

Cameron’s troubles deepened over the weekend when two Conservative Cabinet ministers, Education Secretary Michael Gove and Defense Secretary Phillip Hammond, said they would quit the European Union if a vote took place now.

Far from being strengthened by the plebiscite ploy in January, as I thought he would be, Cameron has seen his position derailed.

At a sensitive time when he is meeting President Barack Obama in Washington today, the row over Europe publicly undermines his authority on a range of other issues — from fighting the economic downturn through to improving relations with China.

Amid growing calls for the British leader to bring forward the referendum ahead of the next general election due by 2015, opinion polls say there is potential for a No campaign gaining 43% of the votes against only 35% for Brits who wish the country to remain inside the EU.

Why the EU matters to the City of London

This eight-point gap is actually lower than in recent years, when the margin has normally been 15-20 points. Cameron has pledged to fight for changes in the U.K.’s relationship with the rest of Europe — less unpopular spending and bureaucracy, more transparency and accountability, and more repatriation of powers back to London.

The PM believes that, provided he can make such policies stick, that should be enough to keep Britain in. This is a similar tactic to the one used by Harold Wilson as prime minister back in 1975, when Britain’s first and hitherto only referendum of membership of the then-European Community took place.

Nothing is inevitable in politics. Assuming Cameron wins the next election and holds a popular vote on Europe, then the benign outcome of continuing British adherence could still come true. Paradoxically in view of the resistance to U.K. association with Europe, Britain does an immense amount of trade with the rest of the continent. It is ahead of China and the U.S. as the major trading partner (exports and imports) of the euro bloc and last year came out ahead of France as Germany’s most important overall trading partner.

However there is now a chasm between the Conservative Party leadership and a majority of backbenchers, as wide now as in Prime Minister Major’s time two decades ago. Although Cameron is by nature a Euroskeptic, he finds it hard to imagine life for Britain outside the E.U. — a lack of imagination for which he is assailed by his Conservative critics.

Heavyweight interventions by Nigel Lawson and former Defense Secretary Michael Portillo could make all the difference.

But there are also important counter-reactions across the continent. This includes from some leading public figures in Germany who oppose the less market-oriented and more dirigiste Europe that could ensue if the U.K. left — as well as from politicians from other countries who see Britain as a bulwark against German domination.

In the battle over the U.K. and Europe, there is a still a lot to play for.