Osborne: eurozone crisis is 'significant' threat to UK

Chancellor confirms that recovery is at risk because of European sovereign debt crisis
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The Independent Online

George Osborne admitted that his plans for Britain's economic recovery could be blown out of the water unless European leaders find a solution to the eurozone sovereign debt crisis.

"If the euro crisis deteriorates, if that leads to further deterioration in conditions in financial markets, that will have a significant impact on our economy," the Chancellor told the Treasury Select Committee yesterday.

Referring to the estimate from the Office for Budget Responsibility (OBR) that the economy would grow by 0.7 per cent in 2012, Mr Osborne said "there is a very significant downside risk to this forecast from the ongoing situation in the eurozone".

Pressed to quantify the scale of the danger to the economy, the Chancellor refused to be drawn. "We don't know how that adverse outcome would play out," he said. The Chancellor did reiterate, though, that the Treasury was engaged in contingency planning for a eurozone emergency.

The National Institute of Economics and Social Research (NIESR) said yesterday that the UK economy grew by 0.3 per cent in the three months to November, down from 0.4 per cent in the three months to October.

The Chancellor came under fire from committee members for the fact that newspapers were told many of the details of what would be in last week's Autumn Statement before he delivered it to Parliament. Mr Osborne was asked by the committee chairman, Andrew Tyrie, whether there was any pre-briefing ahead of the statement.

"We try and run a tight ship," Mr Osborne insisted. "The key fiscal judgements were kept to the statement, they were not pre-briefed. Parliament was told first."

The OBR chairman, Robert Chote, revealed to the committee on Tuesday that the Government spending watchdog was not given the full details of Mr Osborne's £250bn National Infrastructure Plan while the OBR was drawing up its forecasts. Mr Chote said the first he heard about the details were when they were reported in the media the weekend before last. But Mr Osborne hit back at the suggestion that he had deliberately kept the OBR in the dark.

Denying there was a "sinister plot" to withhold the information from the watchdog, the Chancellor said: "I've satisfied myself that the OBR had all it needed in terms of additional spending on infrastructure. They had that number. They didn't have the full document [the National Infrastructure Plan] because it wasn't relevant."

Mr Osborne also repeated the call he made in Parliament on Tuesday that bankers should not pay their employees bonuses but instead use the funds to build up their capital levels.

The Chancellor also said that the Government would publish its response to Sir John Vickers' report on banking reform on 19 December, and that next year's Budget would be delivered on 21 March.

In its forecasts, the NIESR said the economy was not on course to return to its 2008 output peak until 2013, and that latest estimates of gross domestic product supported the case for further quantitative easing by the Bank of England.

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