Bloomberg News

Cameron Offers Optimism Amid Worse-Than-Expected U.K. Slump

October 05, 2011

(Adds economic data in fourth paragraph, updates with Cameron quotes starting in 14th.)

Oct. 5 (Bloomberg) -- Prime Minister David Cameron acknowledged that Britain’s economic slowdown has been worse than he expected, as he bid to reassure voters he’s “laying the foundations for a better future.”

With data today showing growth slowed more than initially estimated in the second quarter, Cameron argued in his closing speech to the annual conference of his Conservative Party that his strategy is still the right one. Echoing Chancellor of the Exchequer George Osborne two days ago, the premier said the debt crisis hitting developed economies won’t respond to the fiscal stimulus that might be appropriate for other recessions.

“We need to tell the truth about the overall economic situation,” Cameron told delegates in Manchester, northwest England. “People want to know why the good times are so long coming. The answer is straightforward, but uncomfortable. This was no normal recession; we’re in a debt crisis.”

Britain has struggled to recover from recession, with the economy barely growing over the past year. From peak to trough, GDP contracted 7.1 percent, more than previously thought, the Office for National Statistics said today in London. Only Japan suffered a deeper slump among Group of Seven nations. In the second quarter, GDP was 4.4 percent below its pre-recession peak in early 2008, leaving Britain trailing recoveries in the U.S., Germany and France.

Slower Growth

U.K. gross domestic product rose 0.1 percent from the first quarter, lower than the 0.2 percent previously published, according to the ONS. Consumer spending plunged 0.8 percent, the most since the first quarter of 2009.

The opposition Labour Party’s finance spokesman, Ed Balls, said the data should “set alarm bells ringing.” The prime minister “needs to come up with a plan for jobs and growth and he needs to do it fast,” Balls said in an e-mailed statement.

“If we put in the effort, correct those mistakes, confront those vested interests and take on the failed ideas of the past, then I know we can turn this ship around,” the premier told his party. “Success will come: with the right ideas, the right approach, the right leadership.” Cameron used the word “leadership” 19 times during the 50-minute address.

A ComRes Ltd. poll for ITV News published last night found 54 percent of adults saying Cameron had done “poorly or very poorly” at providing economic leadership.

Italian Downgrade

Like Osborne, Cameron rejected the idea of “borrowing to cut taxes or increase spending.” That strategy was endorsed Oct. 3 when Standard & Poor’s affirmed the country’s AAA debt rating. By contrast, Moody’s Investors Service cut Italy’s credit rating yesterday, citing concern that country’s government will struggle to reduce its debt.

The government’s plan to eliminate the structural deficit by 2015 by introducing the deepest public spending cuts since World War II has drawn criticism from Labour and unions, who say it’s leading to stagnation.

Consumers are also being squeezed by inflation that’s more than double the Bank of England’s 2 percent target and outpacing wage growth. Tesco Plc, the country’s biggest retailer, said today its U.K. stores had their worst sales performance in at least six years in the six months ended Aug. 27.

Osborne announced measures to aid the economy at the conference two days ago, saying he’ll start a program of “credit easing” to expand company financing.

‘Stick With It’

“Our plan will work,” Cameron said, “I know you can’t see it or feel it right now,” he told delegates. “It’s like building a house. The most important part is the part you can’t see -- the foundations. Slowly, but surely, we’re laying the solid foundations of a stronger future. But the vital point is this, if you don’t stick with it, it won’t work.”

Cameron said he won’t allow Britain to participate in any further bailouts of European nations beyond the country’s contributions to the International Monetary Fund.

“I won’t let us be sucked into endless bailouts of countries that are in the euro either. Yes, we’re leading members of the IMF and have our responsibilities there,” Cameron said. “But when it comes to any euro bail-out mechanism, my approach is simple: Labour got us into it and I’ve made sure we’re getting out of it.”

Cameron also said he wants to change the law to allow same- sex marriage because he’s a Conservative and believes in commitment.

“It’s about equality, but it’s also about something else, commitment,” Cameron told delegates. “Conservatives believe in the ties that bind us, that society is stronger when we make vows to each other and support each other. I don’t support gay marriage despite being a Conservative. I support gay marriage because I’m a Conservative.”

--With assistance from Gonzalo Vina and Andrew Atkinson in London. Editors: Eddie Buckle, Jeffrey Donovan.

To contact the reporters on this story: Robert Hutton in Manchester, England, at rhutton1@bloomberg.net; Thomas Penny in Manchester, England, at tpenny@bloomberg.net

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


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