19 Feb 2011

Osborne at G20: ‘Britain was overpriced’

As George Osborne meets the world’s 20 most powerful finance ministers in Paris, he tells Channel 4 News that British households are suffering as a crucial rebalancing of the economy takes place.

Earlier this week, the Bank of England lowered its growth forecast and signalled a rise in interest rates to tame inflation, a move which Mr Osborne said he approved of.

He told Channel 4 News: “The inflation in Britain is not unique to Britain. Round the table that I’ve just been sitting at, there are countries like India and China, as well European countries and America that are dealing with inflation issues as well.

“The big judgement the Bank of England have got to get right is to see through things beyond their control and make the right judgements. I think they are doing a good job.”

Inflation is likely to continue to rise this year to around 5 per cent, which would see homeowners squeezed as mortgage costs climb.

The news comes as households grapple rising food prices and a weakening pound.

However, Mr Osborne said: “The fall in the value of the pound is a reflection of that real fact that the country got poorer as a result of the recession versus the rest of the world.”

He added that while British holidaymakers may rue the depreciation of the pound, it will help fix the economic “mess” left by the last government.

“There’s no doubt that the depreciation in the pound has helped – for example our exporters – and it’s part of a rebalancing of the British economy.

“Because the British economy was totally dependent on debt, public debt and deficits, private debt, household debt and banking debt,” he said.

The Chancellor continued: “And one of the reasons why Britain found itself in the economic mess it found itself in was because of the model of growth.

“We need a different model of growth where we export more, where we invest more, and the depreciation of the currency is a fact. It’s happened because in a way, Britain was overpriced in the world and that rebalancing had to take place.”

In his first interview with a Channel 4 News presenter since becoming Chancellor, Mr Osborne said today’s meeting centred around the problem of rising food prices.

He said the group of finance ministers had reached “some solutions… by trying to promote freer trade and by making sure that some of the poorest nations in the world get help”.

The G20 meeting comes as food poverty in 21st century Britain shows signs of rising as recession hits home.

Mr Osborne said: “One of the great achievements of the G20 in the last couple of years has been the absence of a trade war…what it really is achieving is a conversation that avoids a trade war for Britain”.

Watch Channel 4 News’ full interview with George Osborne below

G20: striking a deal
The world's 20 most powerful finance ministers met in Paris today to try to forge a peaceable solution to an increasingly imbalanced world economy, writes economics editor Faisal Islam.
These imbalances are high economics but they ultimately caused the credit boom and crunch and the high food price inflation we're seeing at the moment.
It's been a miracle that we haven't had so far a wave of protectionism and trade wars.
Today they tried to strike a limited deal on managing a more balance world economy and basically that means China saving less and the West borrowing less.
The Chancellor connects this in to the rebalancing of Britain's economy away from private and public debt and towards manufacturing.
The cheap pound is crucial to this but that's also one of the main factors behind rising inflation in Britain. So what's the reality of this mythical rebalancing?