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Phase stimulus out carefully

Source: Reuters - Mon 26th Oct 2009

The Chief Secretary to the Treasury Liam Byrne told Sky News on Sunday the country's economic stimulus should be phased out carefully, adding the same kind of stimulus seen during the recession will not be needed once growth returns next year.

The government has pumped billions of pounds into the economy through various fiscal and monetary stimulus schemes, which has contributed to record budget deficits and has so far failed to drag the economy out of recession.

The economy has contracted for six successive quarters for the first time since records began in 1955.

Byrne said he was confident growth would return towards the end of the year, pointing to retail sales and last week's "healthy" business confidence surveys, with growth between 1 percent and 1.5 percent going into 2010.

He said reducing the economic stimulus too quickly, which he accused the Conservatives of wanting, would be "madness" because it would raise welfare costs in the medium term, increase the number of house repossessions and result in higher unemployment.

"What we are saying is 'let's phase out the support very carefully as growth begins to return, let us not slam on the brakes because frankly that would be recipe for wrecking the economy," he told Sky News.

"The great mistake now, and this is the big choice in British politics, is whether you keep the plan in place or switch it off.

"As the economy returns to growth next year it is not going to need the same kind of lifeline that it needed this year."

Byrne said once growth returned the government was "very clear that the deficit has got to be paid down by half over the period of four years, but that is best done on the back of growth." 

Prime Minister Gordon Brown said on Saturday that it would be "suicidal" to suddenly cut off the government's fiscal stimulus.

The budget deficit is set to hit 175 billion pounds, or more than 12 percent of gross domestic product, this year.

The Conservative Party, which is well-ahead in opinion polls, has promised quick sharp cuts in public spending to stem the deficit if it comes to power, as is expected, in a national election that has to be held before next June.

Writing in the Sunday Times, David Cameron said: "It is shocking that the government has still not come forward with a credible plan to get the deficit under control.

"If we fail to get a grip on public spending, investor confidence will fall, interest rates will rise and there will be fewer jobs."

He repeated his party's call for a national loan guarantee scheme to help businesses secure funding.

($1=.6006 pounds)

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