Wednesday March 19, 03:30 PM
UK's Darling stands by budget GDP forecast despite renewed market turmoil UPDATE
(Adds Darling defence of government's fiscal rules)
LONDON (Thomson Financial) - The UK's Chancellor of the Exchequer, Alistair Darling, said he stands by the forecasts he made in last week's budget, despite renewed turmoil in financial markets following the collapse of Bear Stearns (NYSE: BSC - news) .
Darling said the budget forecast was 'for the long term'.
Though events happening now and in the medium term are important, 'we also must remain focused on the longer term,' he said.
But the Chancellor added that the Bear Stearns collapse was something he is 'very focused on at the moment' and will remain so over the next few weeks in the run-up to the G7 meeting in Washington in the middle of April.
He added that authorities in the UK and across the world were doing everything they could to try and limit the impact of the credit crunch.
In the budget Darling slashed the GDP growth forecast for 2008 to 1.75-2.25 pct from the 2.00-2.50 pct he had stated in the pre-budget report in October, which in turn had been revised down from 2.5-3.0 pct previously.
For 2009, Darling sees GDP at 2.25-2.75 pct, lower than the 2.5-3.0 pct range previously. For 2010, however, he maintained the GDP growth estimate at 2.50-3.00 pct.
Darling stressed that the UK is well placed to weather the storm in the financial markets, pointing to today's labour market data which showed employment in the three months to January rose to its highest level since September 2005.
He added that the loosening of the fiscal position in the coming financial year, which was forecast in the latest budget to add an extra 140 mln stg into the economy, would also be supportive in the coming year.
'There is a loosening this year which I think will help the economy,' he said.
However he signalled there is no need to mimic the US government's massive fiscal stimulus package, which has accompanied numerous cuts in US interest rates.
'The American economy's demands our different from our own,' he said, noting that the slight loosening in the 2008 budget and a moderate tightening two years later are 'right for our economy.'
Responding to questions from MPs over the UK's dependence on financial markets, the source of the current economic concerns, Darling highlighted the diversity of the UK's relationships with other countries.
While similarities with the US make the UK vulnerable in some respects to a financial market downturn, the UK's high volume of trade with the EU -- where growth prospects look healthier -- balance out some of these downside risks.
There are also major differences between the US housing market, currently in considerable trouble, and the UK market, he said.
Elsewhere, the Chancellor defended the government's fiscal rules, particularly the 'golden rule' which requires the government to borrow only to invest over the economic cycle.
This rule has come under criticism because of the lack of clarity on when cycles begin and end, but Darling insisted the rule is the best option.
'I certainly don't see any difficulty, far from it, in having rules that span a cycle,' said Darling.
If a government tried to balance the books every year 'that would lead to some very unbalanced planning,' he added.
The Chancellor also defended the 'sustainable investment rule', which puts a cap of 40 pct on government debt as a percentage of GDP.
Darling described the rule as 'prudent' and noted it does allow governments to maintain public investment in leaner times.
|
|
|
Send Article by Email
Send Article by IM
Blog This with Y! 360
Printable View