LONDON – British Prime Minister David Cameron on Thursday vowed to stick to austerity, rejecting calls to focus more on economic growth despite the country’s recent embarrassing credit ratings downgrade.
Cameron argued that the U.K. is beginning to see signs that the size of its debt is falling thanks to his government’s tough spending cuts and tax increases and said changing that approach risks plunging Britain “back into the abyss.”
“There are signs that our plan is beginning to work,” he said in a speech in northern England.
Cameron noted the U.K.’s budget deficit was decreasing and that the government’s borrowing rates on bond markets were at record lows — an indication international investors are confident the country will be able to pay off its debts. He also cited signs of a recovery in exports.
“The very moment when we’re just getting some signs that we can turn our economy round and make our country a success…is the very moment to hold firm to the path we have set,” he said.
Cameron’s Conservative Party and its junior coalition partner, the Liberal Democrats, have pledged to cut Britain’s debts, which had piled up amid the global financial crisis and costly banking bailouts. The government has pushed through a grueling austerity drive, with cuts to public-sector jobs and welfare payments.
But the budget cuts have also hurt the economy, which is close to falling back into recession for a third time in just under four years. Critics of the government’s policies say that easing off the austerity drive would help the economy, which would in turn help public finances by boosting tax receipts for the government.
Cameron’s defence of his economic policy follows a bruising set of economic developments in recent weeks.
Moody’s Investor Service downgraded the U.K.’s credit rating last month, saying that sluggish economic growth would hinder the government’s ability to control rising debt levels and deal with any new financial shocks. Two other ratings agencies, Fitch and Standard & Poor’s, have Britain on negative outlook, signalling they too could lower the country’s credit rating.
The Bank of England, too, has expressed growing concern over the economy and came surprisingly close to backing another monetary stimulus in its last meeting.
The prime minister’s speech coincided with an announcement that BT is creating more than 1,000 engineering jobs at its Openreach business, with most of the recruits set to install fiber broadband in homes.
Cassandra Vinograd can be reached at http://twitter.com/CassVinograd