Nov. 11 (Bloomberg) -- Chancellor of the Exchequer George Osborne rejected a call by the International Monetary Fund to revise his spending cuts if the U.K. economy slides into recession.
Osborne, 39, said sticking to plans to eliminate most of the record budget deficit within four years would be the best defense against a global slump. He didn’t comment on a proposal by the Washington-based lender for Britain to cut taxes to stimulate demand.
“In that situation, a hypothetical situation where the world is turning down, the thing that would raise its head, I suspect, would be sovereign debt,” Osborne said in an interview in Hong Kong yesterday. “The most important thing at the moment is fiscal credibility.”
Osborne intends to narrow Britain’s deficit to 2 percent of economic output by 2015 from more than 10 percent today. That will involve 490,000 public-sector job losses and 18 billion pounds ($29 billion) of welfare reductions, a cut of almost 9 percent in the total bill.
Osborne said his budget plans have been praised widely, including by the IMF and leaders in China where he spent two days on a visit this week aimed at boosting trade. The Bank of England said yesterday that the economy would grow above its long-term average over the next two years.
“The IMF make a point about potential contingency planning in the U.K.; they were saying that, in a situation where there is a very serious global downturn, Britain, like many other countries, will have a challenge,” Osborne said.
The chancellor, who heads for Seoul today to the Group of 20 summit, declined three times to say whether he will consider plans to combat such a challenge. He says that regulating demand is the role of monetary policy, not government spending, and his plans have helped secure Britain’s top-grade credit rating.
Standard & Poor’s said last month the cuts had safeguarded Britain’s AAA rating and it was no longer in danger of being downgraded.
Elsewhere in Europe, Spain, Italy and Belgium “are unlikely to grow strongly enough to avoid the fiscal arithmetic becoming more challenging,” HSBC Holdings Plc said two days ago. Erik Nielsen, chief European economist at Goldman Sachs Group Inc., said Nov. 8 some euro-area countries’ financing costs won’t be sustainable because of weak growth.
Central bank governor Mervyn King noted the importance of the global economy, and especially the euro area, for the U.K. outlook yesterday.
Osborne rejected suggestions that King has been wrong to express his views on fiscal policy. King has repeatedly stressed the need for a “credible” fiscal plan and yesterday denied putting pressure on the government, saying he had spoken less about the public finances than his counterparts at the U.S. Federal Reserve and the European Central Bank.
“The governor of the Bank of England is entitled to express his opinions, and he has done, and he is entirely independent when he does that,” Osborne said.
Osborne Rejects IMF Call to Revise Plan If UK Growth Falters
I'm more and more amazed by the new coalition government in the UK, as they seem to be doing most of the right things and rejecting all Keynesian destructive theories. Here are some quotes from a Bloomberg report about the rejection of the call from the ever-Keynesian IMF: