LONDON (Reuters) - David Cameron promised to stick to his deficit reduction plan on Thursday despite a lack of economic growth and loss of his country’s top-notch credit rating, saying Britain would plunge “into the abyss” if he changed course.
Defending his strategy from critics who argue too much austerity is killing off growth, Cameron said the Bank of England had to play its part in getting the economy growing and said the government had to curb spending and borrowing.
“We will not be able to build a sustainable recovery with long-term growth ... unless we fix this fundamental problem of excessive government spending and borrowing that undermines our whole economy,” Cameron told an audience in Yorkshire, England.
“The Bank of England must support the recovery without putting financial stability at risk.”
Cameron’s comments came after a top minister in the Lib Dems publicly questioned his focus on cutting debt, suggesting it may be time to borrow more to invest in infrastructure.
That intervention, by Vince Cable, the business minister, on the eve of the prime minister’s speech, was the strongest call yet from inside government to change course and exposed a rift in the coalition over economic policy, though Cameron denied that on Thursday, saying Cable agreed with his policies.
Speaking ahead of a March 20 budget that will be dissected by the markets and ratings agencies alike, Cameron said there were signs his economic policies were beginning to work, saying it was imperative to “hold firm to the path”.
“The decisions we make now will set the course of our economic future for years to come,” he said. “And while some would falter and plunge us back into the abyss, we will stick to the course.”
Borrowing to spend more would jeopardise the nation’s finances, he added, saying it was vital to maintain fiscal credibility to keep interest rates low to ensure householders and small businesses could borrow.
The state of Britain’s anaemic economy is linked to Cameron’s own political fortunes.
His advisers are banking on an economic recovery being under way by the time of the next general election in 2015, allowing Cameron to whittle away the opposition Labour Party’s lead in the opinion polls and win.
But for now the economy appears stuck in a rut and could already be in its third recession since 2008, while public debt is set to carry on rising for another three years despite some public spending cuts.
“LONG HARD ROAD”
However, Cameron told his audience he had cut the country’s deficit by a quarter, interest rates were at a record low, exports were reviving, the number of people on welfare had fallen, and there were more people in work “than ever before in our history”.
“But the very moment when we’re just getting some signs that we can turn our economy round and make our country a success ... is the very moment to hold firm to the path we have set,” he said.
The opposition Labour party often accuses him of inflicting pain on millions of families across the country with his austerity drive, but Cameron argued his policies were necessary to give people better living standards in the long term.
Britain suffered its first-ever sovereign ratings downgrade from a major agency last month, after Moody’s stripped the country of its triple-A rating, blaming weak prospects for the economy, and Cameron is under mounting pressure to show he can deliver growth.
He said the downgrade “was the starkest possible reminder of the debt problem we face”.
Labour says Cameron’s determination to stick to austerity is killing off any chances of a recovery, while Cable, the outspoken business minister, said low interest rates could finance more capital spending without undermining the strategy of reducing Britain’s structural deficit.
Len McCluskey, the general secretary of the Unite trade union, said of Cameron’s speech:
”He ought to have stood before the nation today and apologised, but instead he stubbornly refuses to shake the austerity addiction.
“This speech was a textbook lesson in complacency and incompetence that flew in the face of the everyday reality that working people are experiencing.”
Cameron delivered his speech at the same time as the Bank decided not to restart its main stimulus programme, saying it had decided to keep interest rates unchanged from the record low 0.5 percent first hit four years ago.
Editing by Stephen Nisbet