UK PM vows ‘further and faster’ cuts

Economy shrank by 0.3 pct in 4th qtr of 2012

LONDON, Feb 27, (Agencies): British Prime Minister David Cameron said Wednesday that his government needed to slash the deficit “further and faster” after Moody’s ratings agency stripped the country of its cherished top-level AAA credit rating.

The comments sparked fresh speculation that finance minister George Osborne could announce more spending cuts when he unveils the coalition government’s annual budget on March 20.

“This credit rating does matter and it demonstrates that we have to go further and faster on reducing the deficit,” Cameron told lawmakers in his first comments on the topic since the agency axed Britain’s top credit assessment late last Friday.

Moody’s downgraded Britain by one notch from AAA to Aa1, arguing that government debt was still mounting and that growth was too weak to reverse the trend before 2016.

The leader of the opposition Labour party, Ed Miliband, described the downgrade as a “humiliation” for Cameron, whose Conservative-led government had made safeguarding the triple-A rating a key test of its economic policy.

The Labour party has consistently argued that the coalition was cutting too hard and too fast, thereby choking off the recovery.

However, Cameron argued Wednesday that the ConservativeLiberal Democrat coalition was clearing up the record deficit that was “racked up” under the previous Labour government.

In a budget update in December, Osborne had warned Britons that they faced an extra year of austerity measures.

Chancellor of the Exchequer Osborne said Britain would face spending cuts and tax hikes until 2018 — after the government had already previously extended the programme by two years to 2017.

Wednesday’s comments came after official data showed that the economy grew by an upgraded 0.2 percent last year. That beat the previous estimate of zero growth but was below the government’s forecast of 0.8-percent expansion.

The Office for National Statistics also confirmed that the economy shrank by 0.3 percent in the fourth quarter of 2012. Another contraction in the current first quarter would place Britain back in its third recession since the 2008 global financial crisis.

The Bank of England has no plan now to charge lenders to park their money at the central bank to get them to lend more, deputy governor Charles Bean said on Wednesday, describing talk of negative interest rates as “blue sky thinking”.

Fellow deputy governor Paul Tucker on Tuesday raised the possibility that the bank could charge lenders to hold their money, which may encourage them to lend to companies instead, possibly boosting growth.

But Bean said this was just one idea among many that policymakers had considered and rejected in a regular review of more radical options.

“Any suggestion that we have a plan to introduce negative interest rates immediately, I should make absolutely clear, is not the case,” Bean said when asked about Tucker’s comments.

Sterling hit a session high against the dollar after Bean’s comments, while the currency was also buoyed by slightly better-than-expected UK growth numbers.

Still, Bean said policymakers should be open to new ideas given the sluggishness of Britain’s economy and, on the other hand, inflation persistently overshooting the bank’s target.