Britain now a safe haven for investors, claims George Osborne

BRITAIN'S recovery will take much longer than first hoped the Chancellor George Osborne conceded yesterday after he faced MPs for the first time since the US's credit rating was downgraded.

But Mr Osborne also claimed that the UK has now become a safe haven for investors because of the drastic measures the coalition has taken in tackling the deficit.

On a day when France also appeared to be on the verge of being dragged into the eurozone crisis following action to save Italy and Spain from being bailed out, Mr Osborne said that recent events had vindicated the government's approach to the economy.

In a statement to the Commons - recalled to debate this week's rioting - Mr Osborne warned that the world economy faced its most dangerous time since the credit crunch hit.

"The whole world now realises that the huge overhang of debt means that the recovery will take longer and be harder than had been hoped," he told MPs. "Markets are waking up to this fact and that is what makes this the most dangerous time for the global economy since 2008."

While the FTSE had slumped the market for government bonds was still buoyant thanks to tough deficit reduction measures, he said.

And he insisted that the British economy was still expected to grow rather than slip back into recession.

Mr Osborne blamed the slower recovery on international factors which have hit UK trade.

He said: "Instability across the world and in our main export markets means that in common with many other countries expectations for this year's growth have fallen.

"That is what our response must be. First we must continue to get our own house in order."

Labour had previously quoted the Obama administration's approach of introducing a new fiscal stimulus to tackle the crisis, which has partly led to the US's credit rating being downgraded.

But yesterday Labour warned that the coalition's efforts to reduce the deficit quickly could lead to years of stagnation.

Shadow chancellor Ed Balls said: "Families and businesses, deeply worried about their jobs and mortgages, will hear your talk of 'safe havens' and conclude you are either deeply complacent or in complete denial about what is going on in our country."

He added: "We do need a tough, medium-term plan to get our deficit down but it is your reckless policies, too far and too fast, that have left our economy deeply exposed to this brewing global hurricane."

SNP Treasury spokesman Stewart Hosie also repeated the Scottish Government's demands for a plan B to help boost growth.He said: "In the face of the massive downgrading of growth forecasts, which are essential to meet his deficit reduction plan, the Chancellor must say whether he plans tax hikes or further cuts as he attempts to get back on target.

"It is no longer good enough for George Osborne to simply assert that his deficit reduction plan is working when such a fundamental component as economic growth has been holed below the waterline."

Global markets rallied by the close but only after another volatile day marked by wild swings that saw the FTSE 100 drop below the psychologically-important 5,000 mark again.

It closed 156 points, or 3 per cent, higher at 5,163 as a strong opening for US shares turned sentiment around and fears over the health of European banks eased.