Slow growth is making it harder than expected for Britain to cut its deficit, but even a temporary fiscal stimulus to boost the economy would be dangerously wrong, Prime Minister David Cameron said on Monday.
Addressing business leaders a week before Chancellor George Osborne makes his autumn budget statement, Cameron said there would be measures to improve infrastructure and tackle youth unemployment but the priority would be deficit reduction.
Getting debt under control is proving harder than anyone envisaged. High levels of public and private debt are proving to be a drag on growth, which in turn makes it more difficult to deal with those debts, Cameron told the Confederation of British Industry's annual conference.
But this also undermines further the case for adding to the national burden of debt with even more borrowing, the Conservative leader added.
Britain's opposition Labour Party has called for an easing in the pace of the Conservative-led coalition's five-year deficit reduction plan, as growth prospects have weakened sharply due to the euro zone debt crisis.
Cameron rejected this. We are recovering from a debt crisis, not a traditional recession. People who argue that traditional fiscal stimulus, extra spending funded by even more borrowing, is the right answer are not just wrong, but dangerously wrong, he said.
The surge in the cost of government borrowing for euro zone countries such as Italy and Spain reinforced the need for Britain to maintain market confidence in its fiscal plans, Cameron added.
Cameron said rebalancing Britain's economy towards exports and away from domestic consumption was essential. However, he announced plans to support Britain's house-building industry by underwriting mortgages for first-time buyers and said Osborne would announce separate measures to boost infrastructure investment next week.
Cameron also said Britain was about to sign a 10-year gas supply deal with Norway, details of which would be available later on Monday.
(Reporting by Keith Weir and Fiona Shaikh, writing by David Milliken; Editing by John Stonestreet/Ruth Pitchford)