Economists Back U.K. Chancellor's Decision To Delay Spending Cut

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More than 60 leading economists in the U.K. backed Chancellor Alistair Darling's decision to delay spending cuts until 2011.

Economists declared their support in two letters published in Friday's edition of the Financial Times. The two letters were a riposte to the 20 economists who wrote to The Sunday Times last weekend favoring the Conservative party's argument that fiscal tightening should start this year.

In one letter, economists said there is no disagreement that fiscal consolidation will be necessary to put UK public finances back on a sustainable basis. But the timing of the measures should depend on the strength of the recovery. "With people's livelihoods at stake, a responsible government should avoid reckless actions," economists said in the other letter.

One of the letters, organized by cross bench peer Robert Skidelsky, said the authors of The Sunday Times letter were trying to "frighten" the public over the level of the deficit. "How do the letter's signatories imagine foreign creditors will react if implementing fierce spending cuts tips the economy back into recession," economists asked.

Economists who signed the letters to the FT include Nobel laureates Robert Solow and Joseph Stiglitz and five former members of the Bank of England's monetary policy committee.

In the other letter, organized by Richard Layard, Emeritus Professor of Economics and founder of the London School of Economics' Centre for Economic Performance, economists said Darling's plan for next year is sensible. "While unemployment is still high, it would be dangerous to reduce the government's contribution to aggregate demand beyond the cuts already planned for 2010-11," the letter said.

Figures released by the Office for National Statistics showed Thursday that the British government borrowed GBP 4.3 billion more in January.

(Market News Provided by RTTNews)