Sean O'Grady: Britain is not as safe as the chancellor would have us believe

Is Britain a safe haven in a troubled world as Mr Osborne said yesterday? Well, in the sense that everywhere else is a disaster, yes. By comparison with the fiscal train wrecks of the US, the eurozone and Japan, it is demonstrably true. Only gold, the Swiss Franc and the Norwegian Krone are more popular with nervous investors than gilts. That Britain, on some measures, pays less to borrow than Germany does is remarkable – but then again that does have more to do with the frailty of Germany's eurozone partners than anything else.

George Osborne may be allowed a little self satisfaction that Britain, in spite – perhaps because – of its coalition government, has actually got a more politically agreed deficit reduction plan than America, the eurozone and Japan. Indeed, behind the posturing, Labour's deficit reduction plan, so far as it can be discerned, is not very different to that of the Coalition. There is, then, virtually a cross-party consensus on this. Our banks are relatively well capitalised. We can devalue our own currency to boost exports. What could go wrong?

Mr Osborne rightly points to the "disastrous" potential for trouble in Europe. But there is another danger, unacknowledged by Mr Osborne; slow growth. This will push borrowing higher in the coming year. Thus far, the markets have indulged Mr Osborne because he has shown himself so determined to tackle the underlying deficit. So far so good.

Yet there must come a limit to that, a moment when the sheer volume of gilts issued overwhelms investors' appetites. Quite apart from the social stresses that slow growth imposes, that is why growth matters: and that is why we are not quite as safe as the Chancellor claims.