Downing Street Says

Asked if the Prime Minister thought that banks should focus on cutting mortgage rates or rebuilding their balance sheets, the PMS replied that the Prime Minister believed that we had taken action in order to strengthen the balance sheets of banks through the re-capitalisation programme and that the banks should pass through any reductions in base rates so that customers would benefit. Put that Bank of England figures released today showed that banks were not passing on rate cuts, the PMS replied that the Government s position had been set out by the Chancellor and the Prime Minister at the end of last week and he referred people to that.

Asked if there would be more announcements on the repossession package, the PMS said that we were working with the banks and we would be in a position shortly where we would be able to make further announcements on that.

Asked if the Prime Minister would accept the point from the leader of the opposition that decisions on the economy were so serious that the public should be able to vote in a general election on the matter, the PMS said that the public would have a choice when there was a general election. What the public would expect was for their Government to govern and that was what we were doing with the action that we were taking in order to help families and businesses get through the downturn fairly.

Asked whether the Prime Minister or the Chancellor had given any indication in Cabinet as to how bad the recession would be, the PMS said that we had set out our forecasts in the PBR and that was the Government s position. What the Cabinet was unanimously clear about was that failure to take action now would mean a longer, deeper and more protracted recession which could have potentially permanent, damaging effects on the economy and that was clearly something the Government would do everything in it s power to avoid.

Asked what part of the economy the potential permanent damage could affect, the PMS replied that the case for the fiscal action that we were taking was in order to avoid some of the damaging consequences of a recession that we were seeing in other countries and previously in the UK. That was why we were taking action in Britain and that was why there was almost a universal global consensus on the need to compliment action on monetary policy with action on fiscal policy.

Asked what the Prime Minister thought about remarks made by Jean-Claude Trichet on budget deficits not exceeding 3% of GDP, the PMS said that Jean-Claude Trichet was the Governor of the European Central Bank and he had made other remarks that people could interpret in a different way. We would interpret his remarks as being focussed on the Euro area and countries that had to apply to the full terms and conditions of the Stability and Growth Pact. What people had seen was the Head of the IMF for example, making it clear that countries which had relatively low levels of public debt like the UK, were in a good position to undertake a fiscal stimulus.

We were seeing countries like France that had a higher level of public debt undertaking a fiscal stimulus of equivalent size to that in the UK. We were seeing America that had a higher level of public debt as a proportion of GDP, talking about a fiscal stimulus potentially greater than what we had seen in the UK.

The PMS added that it was now accepted pretty much around the world that we did need to take fiscal action in order to support monetary action, particularly in those countries which started from a position and went into this downturn with relatively low levels of public debt as a proportion of their national income like the UK.

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» Tuesday, December 9, 2008

Economy

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