Jan. 6 (Bloomberg) — Prime Minister David Cameron predicted a difficult year for the U.K. economy that will require maintaining the current mix of low interest rates and budget-deficit reduction.
“It’s a tough economic environment we’re in,” Cameron said on the “Andrew Marr Show” on the BBC. “Right now, Britain needs low interest rates.”
Cameron indicated in a Sunday Telegraph interview that he would like to stay in office another seven years, even as an opinion poll suggested his Conservative Party will lose power in 2015. To keep borrowing costs down, the coalition government must sustain a “credible strategy” for controlling the budget deficit, he said today.
“The top of the list of worries is making sure you continue to have credibility for the deficit reduction strategy,” Cameron said. “That’s the key.”
Persuading global investors that they should keep buying U.K. bonds is ultimately more important than whether “hugely important” ratings companies downgrade gilts, he said. Standard & Poor’s last month lowered its outlook on Britain’s top credit rating to negative, citing weak economic growth and a worsening debt profile.
Bank of England policy makers next week will keep the benchmark interest rate at 0.5 per cent and the quantitative- easing target at 375 billion pounds ($603 billion), according to economists surveyed by Bloomberg News.
U.K. credit conditions eased in the fourth quarter and spreads on mortgage rates declined because of the so-called Funding for Lending Scheme that began in August, according to a Bank of England report last week. Still, services unexpectedly slumped in December, raising the risk of an economic contraction, and economists at Citigroup Inc. forecast more QE in 2013.
The yield on 10-year U.K. government bonds posted the biggest gain in four years last week, rising above 2 per cent for the first time since May 10, as the U.S. budget deal curbed demand for the safest assets.
“We can depend” on the Bank of England, said Cameron, who praised the performance of Governor Mervyn King. Mark Carney, who will succeed King in July, is the “world’s leading candidate as a central bank governor,” he said.
The economy is on the “right track” with declining unemployment and there are “good signs” it is rebalancing toward fresh drivers of growth such as manufacturing, the prime minister said.
An opinion poll published in the Daily Mail today showed the opposition Labour Party with 38 per cent support, the Conservatives on 29 per cent and Liberal Democrats on 11 per cent. The survey by Survation of 1,002 people on Jan. 3 and Jan 4 found 16 per cent backing for the U.K. Independence Party.
Such a result in the 2015 election would upend Cameron’s plans, which the Telegraph reports include staying as prime minister until 2020.
“I want to fight the next election, win the next election and serve,” he said in an interview with the newspaper.
The government this week will publish a document setting out the mid-term aims of the Conservatives’ coalition with Nick Clegg’s Liberal Democrats. “Far from running out of ideas, we’ve got a packed agenda.”
The two parties have clashed over issues such as welfare reform and changes to the House of Lords.
The prime minister also delivers a speech this month on his vision for the U.K.’s role in Europe as he comes under pressure from lawmakers in his party who want to pull out of the European Union. He told the BBC that advisers were studying areas in which the U.K. may seek to revise agreements with fellow European governments, declining to provide details.
“We want to be members of the European Union, particularly the single market, but there are changes we’d like to make,” he said.
Cameron also said the U.K. military is prepared to defend the Falkland Islands if necessary, after Argentine President Cristina Fernandez de Kirchner demanded the islands be handed over. The U.K. and Argentina went to war in 1982 over the South American islands.
“I get regular reports on this entire issue because I want to know that our defenses are strong,” he said. ‘Our resolve is extremely strong.”
–Editors: Ross Larsen, Paul Sillitoe
To contact the reporter on this story: Simon Kennedy in London at [email protected]
To contact the editor responsible for this story: James Hertling at [email protected]