Britain must stick to its deficit-cutting plan and do everything it can to help restore economic confidence, Deputy Prime Minister Nick Clegg said on Thursday after Fitch warned Britain could lose its top-notch credit rating.
Towards the end of last year, the UK saw business confidence drop, but this week several business surveys suggest it is beginning to bounce back, he told the annual conference of the British Chambers of Commerce, a business lobby group.
Of course we mustn't be complacent. We also heard yesterday that unemployment is up and Fitch, one of the credit ratings agencies, reminded us of the importance of sticking to our deficit reduction plan, he said.
But he said Britain should be encouraged by signs of a pickup in business confidence.
We must do everything we can to try and lock in this shift in mood, Clegg said, speaking a week before finance minister George Osborne presents his annual budget to parliament.
Fitch Ratings revised down its outlook on Britain's AAA rating to negative on Wednesday, warning the nation faced a greater than 1-in-2 chance of losing its top-notch status in the next couple of years if the government eases back on its debt-cutting measures.
The Fitch action follows a similar move by Moody's just a month ago and is likely to dampen calls for the government to soften its stance on austerity.
Clegg said Fitch had confirmed its support for the coalition government's deficit reduction plan and had made clear it wanted the plan to continue.
He said the 2008 financial crisis, which brought several British banks close to collapse, was not a normal recession and the recovery would be choppy.
2008 ... wasn't a blip on the economists' graph. It was a ... great big heart attack at the very centre of our economic system, Clegg said.
We know from economic history that where you get those seizures in the financial system, the recovery takes longer, the damage done to the economy ... is deeper, he said.
So of course the recovery is not going to be a conventional one, it is going to be a choppy one, and there isn't a magic wand solution to the painstaking work you need to do to create that recovery, he said.
Britain's economy shrank by 0.2 percent quarter-on-quarter in the last three month of 2011 despite higher consumer spending and strong export growth as businesses slashed investment, official data showed last month.
(Reporting by Peter Griffiths and Adrian Croft)