Cable confident UK can weather financial storm

Click to follow
The Independent Online

Britain remains in "a fairly good position" to weather the current financial storms because of the market credibility earned by the Government's deficit reduction strategy, Business Secretary Vince Cable said today.

Mr Cable was speaking as the world absorbed the shockwaves of the downgrading of America's cherished Triple-A credit rating for the first time in its history.

Rating agency Standard & Poor's said it was marking the US down a notch to AA+ because the deficit reduction plan passed by Congress on Tuesday did not go far enough to stabilise the country's debt situation.

However, it was not immediately followed by the two other major credit rating agencies, Moody's and Fitch, which continued to rank the US as a AAA nation, alongside Britain.

The downgrade sparked a biting response from America's largest creditor, China, which called on the US to end its "debt addiction" and even suggested that the dollar may have to cede its position as the world's reserve currency. India's finance minister Pranab Mukherjee said the situation was "grave".

The development came at the end of a week of turmoil on markets around the world, which saw the FTSE 100 in London lose almost 10% - or £150 billion - of its value, while the eurozone was rocked by fears over whether Italy and Spain can pay their debts.

Unconfirmed reports suggested that finance ministers or officials of the G7 group of industrialised nations may hold a telephone conference call over the weekend to steady nerves ahead of the markets opening on Monday.

The Treasury was unable to say whether any such talks were taking place, but said Chancellor George Osborne was breaking off from his holiday in the US to speak by phone with Jacek Rostowski, finance minister of Poland, which currently holds the presidency of the European Union.

France's finance minister Francois Baroin said it was too early to say whether he would call an emergency meeting of his counterparts from the G7 states, as proposed yesterday by Italian Prime Minister Silvio Berlusconi.

Mr Cable said that the US downgrade had become "inevitable" following the wrangling between Republicans and Democrats in Congress over measures to get debt under control.

The UK has avoided the danger of a similar downgrade - and the interest rate hikes that would result - thanks to the Government's actions to cut debt, he said.

The Business Secretary told Sky News: "Financial markets are now focusing on the credit-worthiness of governments. Three years ago, it was on the banks and banks' stability. Now it is on government debt.

"That's why the UK is in a fairly good position. I think the markets perceive that we have got a stable Government... and we have got on top of the deficit problem and have got a clear programme to deal with it."

Mr Cable said that eurozone countries need to "co-ordinate more and work more as a union" to deal with the consequences of economic weakness in southern Europe. But he insisted that the prospects of Italy defaulting or quitting the euro were "very far-fetched".

Shadow chancellor Ed Balls accused ministers of being "deeply complacent" about Britain's position, and called for a plan for growth to restore momentum to the recovery.

"The bigger question for rating agencies and policymakers in the US and Britain is whether budget plans will depress consumer and market confidence and choke off recovery or whether they will support growth and so help get deficits down in a sustainable way," he said.

"Instead of absurdly claiming that Britain is a safe haven, we need leadership from David Cameron and George Osborne on these global issues and a proper plan for growth in Britain too."

US President Barack Obama said that deficit reduction was essential in the long term, but in the short term his top priorities remained "getting this economy growing faster and creating jobs".

In his weekly radio address, Mr Obama urged the warring US parties to unite behind this goal: "While deficit reduction has to be part of our economic strategy, it's not the only thing we have to do. We need Democrats and Republicans to work together to help grow this economy. We've got to put politics aside."

But an editorial in China's state-owned Xinhua news agency - seen as a mouthpiece for the Beijing regime - said it was time for the US to start living within its means by slashing its "gigantic military expenditure and bloated social welfare costs".

"China, the largest creditor of the world's sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China's dollar assets," said Xinhua.

"Mounting debts and ridiculous political wrestling in Washington have damaged America's image abroad. To cure its addiction to debts, the United States has to re-establish the common sense principle that one should live within its means."