David Cameron promises to "finish the job" on deficit reduction
Scottish news: Cameron aims to 'finish the job' of deficit reduction
Prime Minister David Cameron has sent out a "clear and unequivocal message" that his government will continue with its deficit reduction strategy, promising to "finish the job". Mr Cameron issued his response to the latest shocking figures which show the UK's economic crisis deepening.
The UK government's austerity measures have been heavily criticised recently. First Minister Alex Salmond's call for a stimulus strategy was echoed by the IMF and then the Institute for Public Policy Research (IPPR) which outlined proposals calling for Chancellor Osborne to scrap his austerity measures, increase spending in infrastructure and temporarily cut taxes to boost private sector investment.
Speaking at the Global Investment Conference in London, Mr Cameron pointed to the UK's low interest rates as a sign that his government's austerity policies were working. The Prime Minister said: "Our interest rates are less than 2%...My message today is clear and unequivocal. Be in no doubt: we will go in and finish the job. We will deal with the deficit."
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However the Bank of International Settlements (BIS) recently warned in a report that a low interest rate policy is counterproductive: "The prolonged period of very low interest rates entails the risk of creating serious financial distortions, misallocations of resources and delay in the necessary deleveraging in those advanced countries most affected by the crisis".
Mr Cameron's message was a response to the shocking news of a dramatic 0.7 percent second quarter drop in Gross Domestic Product (GDP).
The prime minister, who was accused by David Miliband of pursuing "low-grade mercantilism" after making trade the main priority of his overseas visits, strongly defended his approach. "I know some people think it is somehow grubby to mix money and diplomacy," he said. "But I simply don't agree. This is about jobs."
A growing number of economists argue that the UK now has no alternative but to keep interest rates low because Britain has so much private and public debt that an increase in interest rates would usher in a severe crunch which would turn the electorate against the government.
The concern is that Britain is now trapped and the only weapon it can now use to repay debts is by increasing the money supply thereby devaluing the currency resulting in price inflation and a sudden drop in living standards.
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