UK Osborne: Will Protect UK's AAA Credit Rating

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http://online.wsj.com/article/BT-CO-201 ... inesEurope

LONDON (Dow Jones)--U.K. opposition treasury spokesman George Osborne pledged Tuesday that a Conservative Party government would hold onto the U.K.'s AAA credit rating, placing the maintenance of investor confidence in the U.K. economy at the heart of his economic agenda.

In a speech at the British Museum in London, Osborne also confirmed that the Bank of England would remain independent under a Conservative administration and retain its current 2% inflation target.

The Conservatives are the current favorites to win a general election due by June 3.

In his remarks, Osborne warned that maintaining the U.K.'s top-notch credit rating would not be easy but said it would be a central "benchmark" on which his party's economic management would be judged if it wins power this year.

"I know that we are taking a political gamble to set this up as a measure of success... but judge us by whether we can protect the U.K. credit rating," Osborne said. "The economic risk of not setting ourselves this benchmark is not one I am willing to take."

The opposition spokesman repeatedly declined to give details on the depth of the Conservative Party's planned spending cuts for 2010. The government of Prime Minister Gordon Brown has said it will halve the deficit over the next four years but has said the recovery will be threatened if fiscal tightening starts in 2010.

Osborne laid out several benchmarks on which a Conservative government should be judged, including a commitment to raising exports, savings and business investment as a percentage of gross domestic product.

He pledged to reduce youth unemployment and increase the private sector's share of the economy across all regions in the country.

Osborne's plans won some backing from the business community.

Adam Marshall, director of policy at the British Chambers of Commerce, said the speech "provides a clearer road map for what a potential Conservative government would try to achieve."

"What our members will want to see is the Conservatives sticking to this road map, and actually delivering on these ambitions should they win a general election," he said.

Osborne's speech also received some backing from top executives of several FTSE 100 companies.

But Osborne's speech was attacked by Liam Byrne, the chief secretary to the treasury, who said Osborne had repeatedly ducked questions about how big the Conservative spending cuts would be.

"What's becoming clear is either he has a secret plan or no plan at all. And he must now be straight with the British public," Byrne said.

The U.K. Treasury expects the budget deficit to reach some 12.6% of gross domestic product in the current financial year and ratings agencies have warned the U.K. could see its AAA credit rating downgraded if its deficit reduction plans aren't tightened.

The Conservatives have held a strong lead in the opinion polls for most of the last year but the gap has tightened in recent weeks as the party's pledges of fiscal austerity have sharpened questions about the exact plans. Asked about the sliding Conservative poll lead, Osborne said he doesn't comment on opinion surveys.

Osborne also said he wouldn't set a timetable for selling off the government's stakes in banks taken during the global financial crisis.

He said a Conservative government would refer to the company that manages the stakes for the government--U.K. Financial Investments Ltd.--to provide an independent analysis on when to divest the stakes.

The opposition spokesman reiterated that the U.K. could face a "Greek-style" fiscal crisis if the deficit wasn't dealt with appropriately.

Osborne stressed that a Conservative government would coordinate its deficit reduction program with the BOE's Monetary Policy Committee, ensuring that monetary policy stimulus would allow the government to take tough fiscal action.

"Our whole objective...is to keep interest rates lower for longer," Osborne said.

 

-By Laurence Norman and Joe Parkinson, Dow Jones Newswires; +4420 7842 9270; mailto:laurence.norman@dowjones.com">laurence.norman@dowjones.com