UK Committed to Austerity, No Plan B: Minister
The UK is committed to its austerity plans and is not lining up an alternative, the country's Business Secretary told CNBC Thursday.
Vince Cable's comments came after Prime Minister David Cameron, the leader of the Conservative party which is in a coalition with Cable's Liberal Democrats, warned Thursday that the world is on the brink of a new economic crisis.
In a speech in Ottawa, Canada, Cameron said more "leadership" was needed.
"We’re not quite staring down the barrel, but the pattern is clear," he said "Growth in Europe has stalled, growth in America has stalled."
Cable believes that the risks of an extended downturn are "relatively low", in contrast to Cameron's remarks.
"It could happen if the euro zone blows up. The problem that the Western world has is a general slowing down, which is rather different than a return to 2008," the former economist said.
"The banks are much better capitalized than they were, and governments now know how to combat this sort of crisis. We should probably worry about it less now rather than more."
There has been renewed speculation that the UK may need to revise its austerity package after the IMF warned the government earlier this week it may have to rethink its deficit reduction program because of high inflation and low growth, and downgraded its forecasts for the country's GDP growth.
"Nobody in government and no serious economic observer is talking about a change of direction," said Cable. "The IMF made it clear that the government should stick to its fiscal commitments."
However, he flagged up the potential for changes within the existing policy.
"There's quite a lot of flexibility built into our plans," he said. "There's scope for more (changes to) monetary policy."
"There's no need for a big change in direction, and we would run the risk of losing the massive credibility that we have built up," he added.
Nick Clegg, the Deputy Prime Minister who heads Cable's party, reiterated the party's commitment to existing policy in a speech earlier this week.
The much-publicized difficulties in the euro zone, where heavily indebted peripheral economies such as Greece have had to be bailed out by larger, more successful economies, threaten to affect the UK. While the UK is not part of the euro zone, it relies on the region for much of its trade.
On Thursday,the UK was one of a group of G20 countries which wrote an open letter to French President Nicolas Sarkozy calling for decisive action over the crisis.
"We are not members of the euro zone so we can't dictate policy, but we do want it to succeed. If it doesn't, there would be very damaging effects on trade and possibly on our banking system," said Cable.
"There's an acceptance that Greece needs to do its bit with public finances. They are going to have to have a Europeanization of debt. The problems are with implementation, particularly in Germany."