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U.K. Austerity Isn’t Working, Goldman’s O’Neill Says

Goldman Sachs Asset Management Chairman Jim O'Neill said, “The strategy of the coalition, three years in, is ‘let’s cut debts,’ and what has it done other than in fact not cut debts?” Photographer: Simon Dawson/Bloomberg
Goldman Sachs Asset Management Chairman Jim O'Neill said, “The strategy of the coalition, three years in, is ‘let’s cut debts,’ and what has it done other than in fact not cut debts?” Photographer: Simon Dawson/Bloomberg

March 8 (Bloomberg) -- U.K. Prime Minister David Cameron’s commitment to cutting Britain’s debt isn’t working and is leaving the country in a similar position to the “weaker” euro-area nations, Goldman Sachs Asset Management Chairman Jim O’Neill said.

Political expediency will lead Cameron and Chancellor of the Exchequer George Osborne to change their strategy as the 2015 election approaches, O’Neill said in an interview with Bloomberg Television’s Mark Barton in Cernobbio, Italy.

“They’ve put themselves into a bit of a box” with an unwavering commitment to debt reduction, O’Neill said. “The strategy of the coalition, three years in, is ‘let’s cut debts,’ and what has it done other than in fact not cut debts?”

When Cameron and Osborne get closer to the election they will need to rethink their strategy, O’Neill said. Osborne is facing pressure to ease the pace of his fiscal-consolidation plans in his March 20 annual budget as the economy stagnates.

“We’re now into the second half of their office and it makes common sense for them that they cannot just carry on,” he said. “Whatever they call it, they will shift the broad net fiscal stance because it doesn’t seem to be delivering what they thought it would.”

It is unclear what further quantitative easing by the Bank of England would do to improve the U.K. economy as the weakness of the pound is increasing import costs and “cramping” consumers, O’Neill said.

To contact the reporter on this story: Thomas Penny in London at tpenny@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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