Credit crunch going to squeeze UK growth, Chancellor says

Tightening global credit will slow growth in the UK, Chancellor Alistair Darling said in an interview published today, but he declined to adjust Britain's economic forecast just yet.

'If you look at the consensus of the economic forecasters, it would be prudent to assume that (the credit squeeze) will have some effect on us here," Darling told the Financial Times.

The government is expected to shortly reveal its spending plans for the next three years and a pre-budget report to the House of Commons.

The FT suggests it will be Monday and that the government will lower its estimate of 2.5% to 3% growth in GDP for 2008. This year's estimates are for GDP growth of 2.75% to 3%.

Darling said the US sub-prime lending turmoil and resultant credit tightening would affect all Western economies.

'If you look across the world given the importance of the U.S. economy and given what's happened here in relation to the effect it will have on the availability of credit it would be fairly odd if you didn't take account of that,' Darling said.

Lenders were expected to be more cautious because of the credit squeeze which could impact the housing market. Analysts were now predicting 2008 GDP growth at around 2.2% but Darling was expected to be more optimistic, the paper said.

Darling also spoke about the Northern Rock crisis, saying that maintaining liquidity was an important goal for regulators.

'Regulators have historically concentrated on solvency, for perfectly understandable reasons, but liquidity is also an important factorespecially in an institution like Northern Rock,' he said.

He shot down Bank of England Governor Mervyn King's suggestion that the crisis could have been solved in covert action like a 'smoky backroom'.

'I think the system is just far more open that it was,' he said.