Britain Will Keep Austerity With Unemployment at 16-Year

By Nick Taborek - Mar 18, 2012 11:00 AM GMT+0700

Britain won’t ease austerity in its budget to be presented this week, U.K. Chancellor of the Exchequer George Osborne said in an interview to be aired today on CNN’s “Fareed Zakaria GPS” program.

“We are going to stick with the deficit reduction plan that I set out almost two years ago,” Osborne said, according to a transcript of the interview.

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British Finance Minister George Osborne at 11 Downing Street in London on Feb. 14, 2012. Photographer: Justin Tallis/AFP/Getty Images

U.K. jobless claims rose more than economists forecast in February, and a broader measure of unemployment remained at the highest level in 16 years, according to data released March 14 by the Office for National Statistics in London.

Keeping austerity measures in place is important “to provide the stability that the British economy needs and the low interest rates the British economy needs to allow the recovery to take hold,” Osborne said.

“The plan we put in place is bringing that deficit down and borrowing is coming down,” he said. “But even with that, we still have one of the highest budget deficits in the world.”

The U.K. has the third highest deficit in the Group of Seven countries, behind Japan and the U.S. Osborne is trying to rid Britain of a budget deficit equal to 9 percent of gross domestic product by 2017. His austerity program will cost more than 700,000 government jobs. Critics including the opposition Labour Party say the scale of the squeeze is worsening Britain’s economic woes.

Fitch Rating

Britain risks losing its top investment grade because of its limited ability to deal with shocks, Fitch Ratings said in a March 14 statement.

Fitch changed the outlook on Britain to “negative” from “stable,” indicating a “slightly greater” than 50 percent chance that the AAA rating will be reduced within two years, the company said, citing the weak economic recovery, high debt levels and threats from Europe’s debt crisis.

Osborne is meeting with coalition partners to agree on a budget he will present on March 21.

Osborne said the U.S. and the U.K are “not that dissimilar” in their need for deficit reduction.

“All Western countries know that they’ve got to deal with that question the rest of the world and the markets have, which is, OK, well, how are you going to pay your way?”

To contact the reporter on this story: Nick Taborek in Washington at ntaborek@bloomberg.net

To contact the editor responsible for this story: Ann Hughey at ahughey@bloomberg.net