Business Secretary Vince Cable said the economic argument in the U.K. may have shifted in favor of debt-funded capital investment, with slow growth now a greater concern than a loss of market confidence.
“There is a body of opinion arguing that the risks to the economy of sticking to existing plans are greater than the risks stemming from significantly increased and sustained public investment,” Cable wrote in an article for the New Statesman magazine, headlined “When the facts change, should I change my mind?”
While Cable, a Liberal Democrat, defended the decision of the Conservative-led coalition government in 2010 to emphasize austerity and deficit reduction, he said that move had been made “in the context of febrile markets and worries about sovereign risk, at that stage in Greece, but with the potential for contagion.” Now, he said, “the question is whether the balance of risks has changed.”
Cable’s article came as Chancellor of the Exchequer George Osborne continued preparations for his March 20 budget. The economy shrank 0.3 percent in the final quarter of 2012, leaving it on the brink of a triple-dip recession. The opposition Labour Party argues that the lack of growth is the result of Osborne’s austerity program. Moody’s Investors Service cut the U.K.’s top credit rating last month, citing the weak growth outlook and challenges to fiscal consolidation.
The business secretary cited International Monetary Fund comments last year urging Osborne to consider a change of course if the economy remains weak.
Cable also raised doubts about whether the Bank of England’s monetary stimulus program, known as quantitative easing, is sufficient to help the economy.
“The argument is building that QE may have been useful in the accident-and-emergency ward but is less useful for long-term rehab,” he wrote. “Long-term savers are right to be concerned -- yet this merely reinforces how important it is to return the U.K. to growth and the higher long-term rates that usually follow growth. A premature rate rise would achieve the opposite.”