The Government has a “credible fiscal plan” to enable Britain to ride out the economic storm, Chancellor George Osborne said yesterday.
His comments came as the governor of the Bank of England warned the UK could be facing “the most serious financial crisis” ever seen, after unveiling a surprise move to pump £75 billion into the ailing economy.
Sir Mervyn King’s stark comments on Thursday night that the economic crisis could be worse than the Depression of the 1930s came after the Bank’s Monetary Policy Committee (MPC) voted to boost its quantitative easing (QE) programme – effectively printing more cash – from £200 billion to £275 billion and hold interest rates at 0.5 per cent.
The move, dubbed QE2, is the first change to QE since November 2009 and is the clearest signal yet that the Bank thinks Britain is on the brink of a double-dip recession.
Asked on BBC Radio 4’s Today programme about his previous comments in 2009 that “printing money is the last resort of desperate governments when all other policies have failed”, Mr Osborne said: “We inherited as a Government a pretty desperate fiscal position and we had to take action.
“I think the crucial difference this time is that you’ve got a credible Government plan to deal with our debt.”
He added: “I said the path of radical monetary action and responsible fiscal policy, that is the right route and in 2011 that is precisely the route we’re following.”
Mr Osborne said Britain’s authorities were using “all the tools available” to deal with the “worsening global debt storm”.
He said: “What I’ve always maintained is that in order to undertake radical monetary action, in order to undertake policies like QE, you have to anchor it in credible fiscal policy so the world believes you’re not trying to inflate your way out of your debts, you’re actually prepared to pay off your debts with a credible fiscal plan.”
Mr Osborne said he endorsed Sir Mervyn’s comments: “I certainly think it’s as serious as anything since the 1930s.”
Commenting on reports that credit ratings agency Moody’s had cut the credit ratings of 12 British banks, Mr Osborne said he was aware the decision was going to be made.
He said: “As I understand it, one of the reasons they are doing this, is because they think the British Government is actually moving in the direction of trying to get away from guaranteeing all the largest banks in Britain.”
He added: “I’m confident that British banks are well capitalised, they are liquid, they are not experiencing the kinds of problems that some of the banks in the Eurozone are experiencing at the moment.”
Asked if people should be spending or saving, he said: “I don’t believe in lecturing the British people.
“I think the British people are perfectly capable of making their own decisions about what’s right for themselves, their family.”