Economists: More austerity will spook the markets

By Ian Dunt

Investors will lose faith with the UK if George Osborne implements new austerity measures, economists said today.

A majority of economists surveyed by Bloomberg News said new spending cuts would unsettle the markets more than missing Osborne's debt target.

All but one of the 18 economists surveyed said the government should opt to miss it's goal of reducing the debt as a share of output by 2015/16 rather than introduce new austerity measures in the middle of a recession.

"There are no easy options for the government here," Melanie Baker, chief UK economist at Morgan Stanley, told the news agency.

"The least worst option, we think, would be to stick to the existing austerity plans and make no attempt to repair the fiscal slippage."

The reports will be seized on by Labour as a further sign the coalition's economic plans are failing and that a new round of austerity measures would further suffocate demand.

Osborne will next make a statement to parliament on December 5th, after receiving revised figures from the Office for Budget Responsibility which will lay out whether he has any chance of making his own targets on debt reduction.

Osborne has already announced further cuts of £23 billion and extended the budget balancing programme by two years.