Oct. 12 (Bloomberg) -- Chancellor of the Exchequer George Osborne said there is no quick fix for the U.K. economy as he defended his plan to cut the budget deficit as “tough but necessary.”
Speaking hours after figures showed unemployment rising to a 15-year high, Osborne said opposition Labour Party demands to slow the pace of consolidation would drive up borrowing costs, costing British households and businesses billions of pounds.
“It’s because we’ve got a credible plan that we’re pulling the country out of this economic mess,” Osborne said during a debate in Parliament in London today. “Low interest rates are a precious commodity for the United Kingdom at the moment. Do we really want to see an increase in interest rates at this time?”
Unemployment jumped to 8.1 percent in the three months through August, the highest since 1996, as the number of people in work plunged, the Office for National Statistics said today. Youth unemployment increased to 991,000, the highest since records began in 1992. The jobless rate in that category was 21.3 percent.
Prime Minister David Cameron said the figures were “very disappointing” while warning that scaling back efforts to eliminate the budget deficit would send the economy into “a tailspin.”
“The government is going to do everything it possibly can to get people into work,” he told lawmakers during his weekly question-and-answer session earlier today. “We must not abandon the plan that has given us record low interest rates.”
Bank of England policy makers restarted their asset-buying program last week as Europe’s debt crisis and slowing global growth threatened the recovery. Governor Mervyn King said the move was a response to what may be the worst financial crisis ever.
Labour’s Treasury spokesman, Ed Balls, renewed his plea for emergency tax cuts to stimulate the economy, saying Osborne’s prediction of a private-sector led recovery had proved a “fantasy.”
“This increasingly desperate chancellor is now relying on Plan B, or should I say plan BOE: quantitative easing,” Balls said during today’s debate. “But it can’t work on its own. It can’t revive a stalling economy by boosting demand in one direction when fiscal policy is working in completely the opposite direction.”
Osborne and Cameron have staked their reputations on being able to wipe out the structural deficit by 2015, saying the plan allows the government to borrow for 10 years at 2.6 percent, compared with rates of more than 5 percent in Italy and Spain.
Labour’s proposals would add 20 billion pounds ($32 billion) to the structural deficit and cost Britain its top credit rating, which was affirmed by Standard & Poor’s on Oct. 3, Osborne said.
“We’re sorting out the mess we have inherited,” he said. “Much as I wish that could be done overnight it can’t. So great was the hole they put in the British economy it takes time and effort to come out of that hole.”
Responding to mounting concerns over the economy, Osborne outlined plans last week to ease the credit strains continuing to hamper small and medium-sized companies by using billions of pounds of public money to buy or guarantee their debt.
The National Institute of Economic and Social Research said yesterday the recovery is the weakest Britain has seen for almost a century, with output in the third quarter estimated to be 4 percent below its pre-recession peak in early 2008.
Alistair Darling, chancellor in the previous Labour government, told lawmakers today’s jobless figures had increased concerns about “a very long period of stagnation with tremendous cost to the country.”
--Editors: Andrew Atkinson, Eddie Buckle
To contact the reporters on this story: Svenja O’Donnell in London at email@example.com; Thomas Penny in London at firstname.lastname@example.org
To contact the editors responsible for this story: Craig Stirling at email@example.com; James Hertling at firstname.lastname@example.org