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Britain may default on debt: Opposition

Last Updated: Wednesday, August 19, 2009 - 11:48

London: Britain`s record level of borrowing during the recession could lead the government defaulting on its debt, media reports said on Wednesday quoting Conservative leader David Cameron.

Cameron said the country ran the risk of becoming less attractive to overseas investors, or unable to meet its obligations, if it continued borrowing.

He branded as a "disgrace" Labour`s plans to more than double the national debt to 1.4 trillion pounds in the next five years, the Guardian reported.

"You can get to a level of government debt where, not that it becomes certain that people will cease to lend you the money, but you start running risks of them demanding higher premia, higher interest rates. Or you run the risk of not being able to meet your obligations," he was quoted as saying at the Royal Society of Arts in London.

Faced with lower income from financial services and rising welfare payments, the country`s budget deficit is forecast to reach 175 billion pounds this year, more than 12 percent of GDP.

In May, Standard & Poor`s cut Britain`s sovereign rating outlook to negative from stable, retaining its triple-A rating but warning there was one in three chance of a downgrade.

Cameron was careful to qualify his comments after Labour accused him in January of talking down Britain when he warned Prime Minister Gordon Brown may be forced to go to the International Monetary Fund (IMF) to prop up its economy.

"I have never predicted that is going to happen. But as government borrowing goes up and up and up, you start running that risk," he was quoted as saying.

"You should not be running that risk...I`m not saying it`s going to happen, but the government, with the levels of indebtedness they have, they are running those risks."

Cameron also was quoted in other newspapers.

An aide to Chancellor Alistair Darling accused Cameron of scaremongering as well as "inexperience and opportunism."

"It was an extraordinarily stupid thing to say which betrays his inexperience and opportunism," he was quoted by Guardian as saying.

"Rather than scaremongering, David Cameron should explain why he thinks it is right to undermine prospects of recovery by cutting spending now."

Public spending is likely to be a key political battleground in the run-up to the general election, which has to be held before June.

Cameron`s Conservative party is well ahead in the opinion polls, with one of the latest showing Labour trailing by up to 17 points.

The Conservatives say spending will have to be cut, accusing Labour of not being straight with voters about the state of the public finances.

Labour says the Conservatives are planning 10 percent cuts in many public services.

Economists say whichever party wins the election, it will have to juggle a combination of spending cuts and tax hikes to cut the budget deficit.

Bureau Report

First Published: Wednesday, August 19, 2009 - 11:48
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