British Chancellor of the Exchequer George Osborne yesterday warned that the British economy faces a “dangerous cocktail of new threats” this year, insisting on the need to remain strict on public spending.
His comments come amid a sell-off on financial markets, with Chinese stocks plunging on concerns of a slowdown in the world’s second-largest economy.
“We are only seven days into the new year and already we’ve had worrying news about stock market falls around the world, the slowdown in China, deep problems in Brazil and in Russia,” Osborne was to say in a speech to business leaders in Wales, according to prereleased remarks. “Last year was the worst for global growth since the crash and this year opens with a dangerous cocktail of new threats.”
The British pound fell to the weakest level since June 2010 following Osborne’s warning. Sterling dropped 0.4 percent to US$1.4575 at 9:04am London time and touched US$1.4561. The UK currency slid 0.8 percent to ￡0.7426 per euro.
Since he became chancellor in 2010, Osborne — considered a possible successor to Conservative British Prime Minister David Cameron — has implemented austerity policies in a bid to cut Britain’s budget deficit.
Growth in Britain has been stronger than its sluggish neighbors in Europe, but Osborne warned of a “creeping complacency” that the economy is “immune from the risks abroad.”
The chancellor highlighted the need to continue “fixing public finances,” pointing to a drop in oil prices that could spell trouble for energy giants.
He dismissed the idea of “more debt-fueled public spending,” a comment apparently aimed at the opposition Labour Party, whose leader, Jeremy Corbyn, is more favorable toward state investment.
Osborne’s alert was underscored by a gloomy report on the economy published by the British Chambers of Commerce showing both manufacturing and services weakened at the end of last year.
In its quarterly report, the chambers said while its key measures of both services and manufacturing declined in the fourth quarter, the factory indices fared worse, with many companies citing the strength of the pound as their biggest concern.
The cloudy outlook adds to reasons for the Bank of England’s Monetary Policy Committee — which is to announce its latest policy decision on Thursday next week — to keep interest rates at a record low.
“The falling balances in the fourth quarter highlight the risk that the pace of growth may slow further in the short term,” chambers lead economist David Kern said.
The group last month cut its forecast for this year’s growth to 2.5 percent from 2.7 percent, citing a worsening global outlook.
Additional reporting by Bloomberg
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