George Osborne must stay the course, says OECD
Thursday 26 July 2012
George Osborne's programme of deficit reduction was today strongly endorsed by the head of a major international economic organisation, who urged the Chancellor to “persevere” and “stay the course”.
The support from Angel Gurria, secretary general of the Organisation for Economic Co-Operation and Development (OECD), came as the Chancellor came under fresh pressure to change course in the wake of second-quarter growth figures showing the UK had slipped further into recession, with GDP shrinking by 0.7% between April and June.
But Mr Gurria warned that any relaxation of the Government's fiscal position would be punished by the markets and rating agencies. The austerity being imposed now was "sowing the seeds of what will be the elements for recovery", he said.
Programmes to promote growth should be introduced only within the spending envelope set out by the Chancellor, he said. He urged Britons to show patience with schemes to fuel growth already announced by Mr Osborne, which he said would require time to deliver results.
Asked what advice he would give to Mr Osborne, the OECD chief told BBC Radio 4's Today programme: "I would say to the Chancellor 'Stay the course', I would say to the Chancellor that the cost of wavering or looking like you are wavering or looking like you are weakening your resolve today because of what is happening in the markets - because of Spain and Italy and Greece and everything else - is very high indeed.
"Perhaps the flexibility that under normal circumstances one could show - a little bit of weakening and maybe extending the periods for the goals and things like that - today could be misunderstood.
"I think we have to give very strong signals here, and the Chancellor, the Prime Minister and the Deputy Prime Minister are all really quite intent in staying on course and staying on message.
"This is very important, this is why the UK adjustment programme cleared the markets, this is why you have very low borrowing costs, this is why I think you should persevere.
"You are now sowing the seeds of what will be the elements for recovery. You have to have credible public finances before you start moving on growth."
Mr Gurria, who will today meet Mr Osborne at a global investment conference at London's Lancaster House, said that the Chancellor had very little room for flexibility in introducing programmes to stimulate growth, which should not be funded by increasing state borrowing.
"Flexibility should be exercised in terms of reallocation of resources within the envelope, in order to make sure that those elements that will provide future growth are there, yes, but within the envelope," he said.
"For example this funding for lending programme or the infrastructure programme."
He rejected suggestions that the Chancellor's growth schemes had failed, saying: "The programmes need time to produce results... I think we should give it time."
And he dismissed speculation that the double-dip recession was putting the UK's coveted Triple-A credit rating at risk: "I don't think that's the case. References to that were not made by rating agencies.
"I think what the rating agencies are looking for is consistency and coherence and that today is at a very big premium.
"They are the first ones who will turn on you if they see you are not performing."
Mr Gurria agreed with Mr Osborne's analysis that UK growth had been held back by the crisis in the eurozone.
"If the neighbourhood is in such bad shape then predictably, because this is a large open economy which is dedicated to exporting, it will have an impact," he said.
"You can't be isolated, you can't vaccinate yourself against the weakness of your major trading partners."
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