Economy entering 'mission critical' year, warns Osborne

Britain's economy is entering a "mission critical" year in which it will face a "dangerous cocktail" of threats, including slowdown in China, instability in the Middle East and falling oil prices, Chancellor George Osborne has said.

Speaking ahead of a major economic speech in Cardiff, Mr Osborne warned against complacency about the state of the recovery and insisted there can be no let-up in the squeeze on spending.

And he said the UK must be prepared for the prospect of increases in the interest rate from the historic low it has held since 2009 - though he stressed that any upward move would be a matter for the independent Bank of England and it would be "wholly inappropriate" for him to seek to put pressure on governor Mark Carney.

Mr Osborne told the BBC Radio 4 Today programme: "At the start of this year, our economy faces a dangerous cocktail of threats from abroad - from falling stock markets in places like China to instability in the Middle East.

"Our antidote is to go on putting our own house in order here in Britain, so, far from 'mission accomplished' on the economy, 2016 is the year of 'mission critical'."

Mr Osborne's words stand in stark contrast to the optimistic message on the economy in November's Autumn Statement, when he announced that the nation's books were healthier than expected to the tune of £27 billion.

But he told Today: "The whole purpose of the Autumn Statement - and indeed the Budget that came just before it - was to put in place a four-year plan to restore our public finances to health, to make our economy more productive, to make businesses more competitive so they can create jobs.

"It was precisely because we live in an uncertain world, because we have not abolished boom and bust as a nation, that you need to take these difficult steps and I need to go on explaining to the public that the difficult times aren't over and we've got to go on making difficult decisions so Britain can continue to enjoy the low unemployment and rising wages we see at the moment."

It was "necessary" for Britain to continue with what has been described as the most sustained squeeze on spending for a century in order to get its public finances into order, he said.

"We are determined - I am determined - to see through the plan that has got the British economy into the stronger position it is in today," he said.

Mr Osborne denied that the current recovery was driven by consumer debt.

"This is not a debt-fuelled recovery. That's an assessment not of mine but of the independent governor of the Bank of England. Overall levels of household debt have fallen over the last five years."

Asked whether interest rates needed to rise to rein in levels of debt, Mr Osborne said: "Just before Christmas the US saw a rise in interest rates - the Federal Reserve put interest rates up. That was the beginning of the exit from the very, very low interest rates and ultra-loose monetary policy that was put in place during the crash.

"Of course there will come a point where that happens in Britain - a decision made by our independent central bank."

The Government's responsibility was to make sure the country was ready for whatever position interest rates reach, said Mr Osborne.

"We have got to be ready, but ultimately if and when interest rates go up, that will be a sign of a stronger economy that is normalising after the extraordinary crisis of seven or eight years ago," he said.

In his speech, Mr Osborne will take a swipe at Labour by warning that progress "could still easily be reversed" by politicians advocating "billions of pounds more debt-fuelled public spending".

And he will caution: "Anyone who thinks it's mission accomplished with the British economy is making a grave mistake.

"Last year was the worst for global growth since the crash and this year opens with a dangerous cocktail of new threats. For Britain, the only antidote to that is confronting complacency and sticking to the course we've charted."

The Chancellor will say: "We are only seven days into the new year, and already we've had worrying news about stock market falls around the world, the slowdown in China, deep problems in Brazil and in Russia.

"Commodity prices have fallen very significantly. Oil, which was over 120 dollars a barrel in 2012, now stands at less than 40 dollars.

"That is good for consumers and business customers here in Britain, bad news for the oil and gas industry, worrying for the creditors who have lent to it, and a massive problem for the countries that depend on it.

"Meanwhile the political developments in the Middle East, with Saudi Arabia and Iran, concern us all."

He will conclude: "The biggest risk is that people think that it's 'job done'.

"Many in our politics encourage this, irresponsibly suggesting that we can just go back to the bad old ways and spend beyond our means for evermore.

"Though the year is only seven days old, already we hear their predictable calls for billions of pounds more debt-fuelled public spending. They reject all the reforms we propose to deliver better-quality public services for less taxpayers' money.

"Today I want to issue this warning: unless we finish the job of fixing the public finances, to get Britain back into the black by finally spending less than we borrow, all of the progress we have made together could still easily be reversed."