PM defends government borrowing surge

LONDON (Reuters) - Prime Minister Gordon Brown defended a surge in government borrowing on Monday, saying it would be wrong to cut public spending when the economy is contracting because of the financial crisis.

"The responsible course of government is to invest at this time to speed up economic activity," he told business leaders.

"As economic activity rises, as tax revenues recover, then you would want borrowing to be a lower share of your national income," he said.

Data on Friday showed the economy shrank for the first time in 16 years in the three months to September.

Gloom deepened on Monday when engineering firm GKN said it would lay off all 1,400 of its temporary staff while the pace of decline in house prices in England and Wales accelerated to 7.3 percent in the year to October.

Brown has pledged to spend more to help people survive economic hardship as well as to provide billions of pounds to prop up ailing high-street banks.

The plans have been criticised by some analysts for piling on new debt without any guarantee of success.

In a letter to the Sunday Telegraph, academics and leading economists for financial firms Lloyds TSB and Invesco said the spending risked seriously misallocating resources and stunting any recovery in the private sector.

"This would be the wrong time to cut investment in training or education or in the infrastructure projects that are vital to our future," Brown said.