Cameron stands fast over deficit

The Prime Minister launched a defence of the Government’s strategy amid claims from Labour leader Ed Miliband that it was “hurting, not working”.

Question time in the Commons was dominated by the country’s economic prospects after Bank of England Governor Mervyn King braced consumers for a bleak year ahead.

He used a speech on Tuesday night to warn inflation was likely rise to between four per cent and five per cent over the next few months and that the recovery from recession would be “choppy”.

It came after initial figures showed a 0.5 per cent fall in gross domestic product (GDP) in the last quarter – raising widespread calls for the Tory-Lib Dem coalition to present a “plan B” to avoid a double-dip recession.

The Prime Minister admitted that the figures were “disappointing” even allowing for the impact of the extremely cold December weather.

But he told MPs: “It will be choppy and it will be difficult but the worst thing to do would be to ditch your plans on the basis of one quarter’s figures.” Mr Miliband, MP for Doncaster North, demanded to know if the Government would row back on plans for £20bn cuts this year and accused Mr Cameron and Chancellor George Osborne of “arrogance”.

“They are out of touch with people’s lives, they are taking a reckless gamble and what these figures show is that for millions of people up and down the country it is hurting, not working,” Mr Miliband said.

“This is how out of touch you are. What people up and down the country are saying is that you are going too far and too fast with deficit reduction and that is what is inhibiting growth.”

Mr Cameron countered by blaming a “completely bust” Labour policy based on “uncontrollable” housing prices, public spending, financial services and immigration for the present situation.

The Organisation for Economic Co-operation and Development (OECD) praised the Government’s stance and Mr King made clear he believed the country was on the right course, he said.

While the economy was “well placed to return to sustained, balanced growth”, Mr King used his speech to predict strong headwinds facing the economy this year.

Rising unemployment and declines in real earnings would hit spending in the private sector, with the public sector hammered by Government spending cuts.

Analysts warned the surprise decline in GDP – the first since the third quarter of 2009 – seriously damaged prospects for the economy as it took the strain of the Government’s sharp austerity measures.

OECD secretary-general Angel Gurria said the Government should “stay the course”.

“The fiscal situation of the UK absolutely requires this approach. Without it, there will be no medium or long-term growth,” he said.

TUC general secretary Brendan Barber called for “bold action” in Mr Osborne’s March 23 Budget to restore confidence among business and consumers.

“Yesterday’s dismal growth figures and the governor’s revelation that ordinary people are paying a heavy price for the Government’s economic policies, on top of huge cuts in vital services, make a plan B even more necessary,” said Mr Barber.

But Justice Secretary Kenneth Clarke – a former Chancellor – said yesterday Britain’s economy would not return to normal for another two or three years.

Painting a gloomy picture of the coming period, Mr Clarke said it would be a “long haul” before the economy fully recovered from recession.