Financial Regulatory Forum

UK’s Darling: One set of positive data not enough

October 21, 2009

BRITAIN/   By Matt Falloon and David Milliken
   LONDON, Oct 21 (Reuters) – One set of encouraging economic data would not mean that a recovery is entrenched and the British government must keep borrowing to support growth, finance minister Alistair Darling said on Wednesday.
   Darling also said no decision had been made on Lloyds’ <LLOY.L> plans to exit the government’s asset protection scheme. The government owns 43 percent of the bank after bailouts at the height of the credit crisis.
   Darling’s comments come ahead of the publication of preliminary third quarter gross domestic product figures on Friday, which economists expect to show 0.2 percent growth on the quarter following five consecutive quarters of contraction.
    “We must support the economy until we’re sure the recession is over,” Darling said at a Reuters Newsmaker event.
   “Some are tempted to think the crisis is over. It’s not … and one set of data showing positive growth will not be enough. We need to ensure that the recovery is embedded.”
   Darling said borrowing to support the economy now would ensure that the recovery was sustained and it was better to remove fiscal stimulus measures too late than too soon.
   “Withdrawing the support we’ve provided to the economy would put the recovery at risk and abandon people facing unemployment,” Darling said.
   “Borrowing to support people now and to invest in the future may feel counter-intuitive … But in the longer run, it will mean the bills we face as a country are lower, and that we are better placed to pay them off.”
   British government borrowing is forecast to hit 175 billion pounds this year, or more than 12 percent of gross domestic product, triggering concern on financial markets about the credibility of the Labour government’s fiscal plans.
   Darling has said he plans to halve the budget deficit over the next four years but the opposition Conservatives, ahead of Labour in opinion polls with an election due by mid-2010, want to tackle the deficit faster.
   Darling said the regulatory system governing the financial sector had to allow for failure and said Britain’s regulation had to be in step with measures elsewhere in the world.
   In a speech on Tuesday, Bank of England Governor Mervyn King suggested banks could be split up into safer utility-type operations and sections that operated in riskier markets. (Editing by Mike Peacock) ((UK Economics desk, uk.economics@reuters.com, Tel: +44 207 542 1894))
 Keywords: BRITAIN DARLING/ 
  
Wednesday, 21 October 2009 13:33:35RTRS [nLL127663 ] {C}ENDS

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