George Osborne defends austerity plan

After a week which revealed a shrinking of the British economy, George Osborne echoed David Cameron’s earlier pledge to “stick to our guns“

Speaking to Economics Editor Faisal Islam Osborne said the forecast for the British economy showed sustained growth and rising employment and he wanted to ensure the country was not dragged “back into the financial danger zone”.

He said that eventuality “would happen if I were to get up in the House of Commons on Monday and say I am abandoning our deficit reduction plan.”

“That would immediately lead to higher interest rates for families, and for businesses. It would lead to a threat to our credit rating for the country and we’d be back in the mess.”

Our Economics Editor, Faisal Islam, writes: The Coalition may not be for turning on the Austerity Plan, but my gut feeling from Davos is that it will make some changes if the downturn continues.

It was what one leading UK corporate leader called "under the radar changes to support the public", without announcing to the markets any change of plan. It is what former Osborne adviser, and acknowledged world austerity expert Ken Rogoff refers to me as "a slower Plan A".

Some of that involves letting automatic stabilisers work during any downturn, but it is clear that other measures, on fuel for example are being actively prepared.

I interviewed the Chancellor of the Exchequer today in a busy Davos corridor. The difference in tone and demeanour from my last interview with him in August was really rather striking.

Read Faisal's Davos diary.

In his first interview since the GDP figures were released, Mr Osborne told to our Economics Editor Faisal Islam that it couldn’t all be blamed on last month’s bad weather:

“The fall in GDP was according to Office of National Statistics caused by the very bad weather we had in December.

“But I completely accept, and David Cameron and I have said very publicly, that even without the snow we’d like the GDP numbers to be stronger.”

The Chancellor echoed statements from both the Prime Minister and the Bank of England chief, Mervyn King saying that the recovery was “always going to be choppy“.

He said: “We always said it was going to be a challenging recovery, we’ve had the deepest recession of our lifetimes. The biggest banking crisis since the 1930s, there’s a new government that’s trying to sort out this mess but a recovery from those sorts of things is always going to be choppy.

“The important thing is to focus on the big picture, get the fundamentals right make sure our economy has stability, that we deal with our deficit and we have a vision for growth to enable businesses to expand.”

Earlier, Cameron used his first speech as Prime Minister to the World Economic Forum to pledge that Britain would stick to the austerity plan and hinted that a budget for growth would be seen in Spring.

Mr Cameron said that the economic recovery was “always going to be choppy” but that Britain needed to “stick to the course” if it wanted to come through the recession.

He said: “This week we had disappointing growth estimates back home. Yes, they were partly driven by the terrible weather which shut down airports, factories and schools.

“But let’s be frank, they also brought home something we have said for months: given the traumas of recent years, the recovery was always going to be choppy. It’s going to be tough – but we must see it through.

“The scale of the task is immense, so we need to be bold in order to build this economy of the future. The British people know these things. They understand there are no shortcuts to a better future.”

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Bank of England chief warns of 'choppy' economic recovery
Bank of England boss Mervyn King warns that grim GDP figures serve as a stark reminder of Britain's "choppy" economic recovery and says Britons should expect "uncomfortably high" levels of inflation.

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FactCheck: GDP shock - was it the weather wot done it?
FactCheck looked at George Osborne's claim that the weather had a huge effect on the UK's growth figures.