Cameron Says Monetary Policy Will Sustain Demand If U.K. Economy Falters
June 25 (Bloomberg) -- Linda Yueh, an economist at Oxford University, talks with Bloomberg's Maryam Nemazee about the outlook for this weekend's Group of 20 summit in Toronto and proposals for a global bank levy and a tax on securities transactions to clamp down on financial speculation. Yueh, speaking in London, also discusses the debate over austerity measures aimed at cutting budget deficits and stimulating global economic growth. (Source: Bloomberg)
Prime Minister David Cameron said monetary policy will be used to sustain demand if the British economy falters next year, rejecting any loosening of the government’s fiscal consolidation program.
Cameron said reassuring investors about the government’s determination to close Britain’s structural budget gap by 2015 is a priority, and demand management is a job for the central bank. The premier said more work is needed to make sure existing monetary easing translates into more bank lending.
“We want monetary policy to do the work,” Cameron told reporters yesterday as he flew to Canada for the Group of 20 summit. “One of the issues is still bank lending. We want to make sure money is getting out of the banks to the businesses.”
With interest rates at near-zero, Cameron’s comments pave the way for Bank of England Governor Mervyn King to request permission from the Treasury to extend its 200 billion-pound ($300 billion) bond-purchase program, known as quantitative easing, if the economy deteriorates.
Chancellor of the Exchequer George Osborne, who joins Cameron in Toronto later today, announced the biggest budget squeeze since World War II this week.
Top Grade
Moritz Kraemer, head of sovereign ratings for Europe, Middle East and Africa at Standard & Poor’s, praised the measures yesterday while urging the government to sustain its efforts to safeguard the top investment grade for Britain’s government bonds.
Cameron’s comments may reassure the U.S. and other G-20 countries that fear excessive fiscal retrenchment may imperil economic recovery after the financial crisis triggered the worst recession since the 1930s.
“We must be flexible in adjusting the pace of consolidation and learn from the consequential mistakes of the past, when stimulus was too quickly withdrawn and resulted in renewed economic hardships and recession,” President Barack Obama wrote in a June 16 letter to G-20 leaders.
Osborne’s budget this week spelled out proposals to cut spending and raise taxes by as much as 40 billion pounds a year, that together with plans set out by his Labour Party predecessor, Alistair Darling, will suck 113 billion pounds out of the economy by 2015. Osborne is due to spell out reductions in departmental budgets in the fall.
To contact the reporter on this story: Gonzalo Vina in Halifax, Nova Scotia at gvina@bloomberg.net.
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