Economy

I watched this week's negotiations between US policy makers over their public spending and debt levels with growing unease.  Much was at stake, and it's a relief that a deal was struck, albeit at the eleventh hour.

It's a cause for sober reflection that even the world's largest economy needs to persuade the money markets that it is a safe bet for investment.  That's what happens when nations borrow excessively.

And that is why we simply must resist the siren voices urging us to abandon our own fiscal plan.

Many of these voices are nakedly partisan.  They are trying to make a political argument against cutting spending because they think cuts are unpopular.  They've relied on arguing that the US is cutting less.

That argument has just gone out of the window.  President Obama will now be cutting spending by proportionately more over the next few years than we are.  And, by the way, Britain has had better economic growth in the last six months than the US, despite their huge fiscal stimulus.

Let's be clear about what would happen if the Government now took the advice of the Official Opposition and decided to slow the pace of cuts.  Public spending would rise and with it borrowing.  Market confidence in the integrity of Britain's deficit reduction plan would evaporate.

The pound would sink even lower and interest rates would rise, outweighing any benefit from the stimulus of spending more.  It is hard to think what could be more damaging to the prospects of restoring growth.

Of course we all want to see stronger growth, although as the independent Office for National Statistics confirmed, the latest figures were clearly affected by a number of extraneous factors including the weather and an extra bank holiday.  Strip those away and the underlying growth rate, if not spectacular, was certainly not the catastrophe that some claimed.

In fact the private sector has created over half a million extra jobs since the election, youth unemployment has fallen below the level inherited from the previous government, and business investment has increased significantly over the last year.

This week the Confederation of British Industry made clear that abandoning our deficit reduction plan would be disastrous.  The International Monetary Fund again endorsed our strategy, saying that the Government's plan has significantly reduced the risk of a UK sovereign debt crisis.

It remains to be seen whether the US will cling on to its credit rating.  But Britain's, which was put on negative outlook under the previous government, has been restored to its previous highest possible level.

Despite having inherited one of the largest budget deficits, our long-term interest rates are among the lowest in Europe.  Taking the difficult decisions on the deficit have made the UK a safe haven in the recent economic storm.

Our economy has been stable at a time of real international uncertainty.  Such stability is a prerequisite for economic growth.  That is why we must continue to take the tough decisions on public spending - including locally - and hold our course.