09/09/2013 11:35:00

UK's Osborne Claims Victory in Austerity Debate

LONDON--Treasury Chief George Osborne said Monday the U.K.'s economy is "turning the corner," vindicating the government's commitment to pushing ahead with austerity measures.

In his first speech on the economy since signs emerged of a significant pickup in growth from the three months to June, Mr. Osborne will say that to change course now and abandon his program of spending cuts would be disastrous.

The austerity program--which has seen spending cuts and tax rises implemented to try to close the country's huge budget gap--has been the government's cornerstone policy since it came into office in 2010.

But the program has been severely criticized by opposition lawmakers, trade unions, and some business groups and economists, who argued that overly aggressive spending cuts had suffocated growth. Opponents of austerity pushed for a so-called "Plan B" that would take a more moderate approach to correcting the public finances.

After barely growing since 2010, the U.K. economy has this year begun to show tentative signs of life and in recent weeks a run of strong economic data and surveys have indicated a recovery is finally underway.

During his speech at a construction site in east London, Mr. Osborne said that this positive data flow "decisively" ends the debate in favor of his belief that austerity measures coupled with loose monetary policy are the correct remedy for the British economy.

"The evidence increasingly suggests that our macroeconomic plan was the right one and is working," Mr. Osborne said. "Those in favour of a Plan B have lost the argument."

Mr. Osborne also cautioned that the recovery is still in its early stages, and many risks remain, namely the slowdown in emerging markets; the possibility of further turbulence in the euro zone; and the risk that instability in the Middle East will push up oil prices.

"We remain vigilant on all fronts, and our economic plan gives us the resilience and stability we would need if any of these risks were to materialize," Mr. Osborne said. "More tough choices will be required after the next election to find many billions of further savings and anyone who thinks those decisions can be ducked is not fit for government."

The Treasury chief also refuted claims the U.K. is returning to debt-fueled, consumption-led growth, saying the economic data point to a balanced, broad-based and sustainable recovery.

Mr. Osborne said the Bank of England's Financial Policy Committee, the financial and stability watchdog, now has the tools to act if it spots areas of the economy where imbalances are emerging.

Chris Leslie, treasury spokesman for the opposition Labour Party, said Mr. Osborne's speech was a "desperate attempt to rewrite history."

"With prices still rising faster than wages, working people are on average 1,500 pounds [$2,343] a year worse off than in 2010. The last thing they want to hear is complacent and out-of-touch boasts that the last three years have been a success," Mr. Leslie said.

Write to Ainsley Thomson at ainsley.thomson@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

September 09, 2013 06:35 ET (10:35 GMT)

Copyright (c) 2013 Dow Jones & Company, Inc.

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