‘Most Dangerous Time For Global Economy’
Statement by the Chancellor of the Exchequer, Rt Hon George Osborne MP, on the global economy
Thursday, August 11, 2011
Mr Speaker, people will be concerned about the turmoil in the world’s financial markets and what it means for economies here and across the globe.
I want to use the opportunity of the recall of Parliament to update the House on what we are doing to protect Britain from the storm and to help lead a more effective international response to the fundamental causes of this instability.
As of this morning, after heavy losses yesterday, markets in Asia and Europe are calmer.
But over the past month:
The Dow Jones index has fallen by over 14%;
The French market is down 23%, the Nikkei by 11%
And it is striking that the German market is down 24% and even Chinese equities are down 20% since November.
Bank shares in all countries have been hit particularly hard.
Many sovereign bond markets too have been exceptionally volatile – with market rates for Italian and Spanish debt soaring, before falling back in the last three days.
Sadly Britain is not immune to these market movements.
In the last month, the FTSE 100 is down by 16% and British bank shares have also been hit hard.
However, while our stock market has fallen like others, there has been one striking difference from many of our European neighbours.
The market for our government bonds has benefitted from the global flight to safety:
UK gilt yields have come down to around 2.5% – the lowest interest rates in over 100 years;
And earlier this week the UK’s Credit Default Swap spread, or the price of insuring against a sovereign default, was lower than Germany’s.
This is a huge vote of confidence in the credibility of British Government debt and a major source of stability for the British economy at a time of exceptional instability.
And it is a reminder of the reckless folly of those who said we were going too far, too fast.
We can all see now that their approach would have been too little, too late – with disastrous consequences for Britain.
Mr Speaker, it is not hard to identify the recent events that have triggered the latest market falls.
There has been the weak economic data from the US and the historic downgrade of that country’s credit rating.
And the crisis of confidence in the ability of Eurozone countries to pay their debts has spread from the periphery to major economies like Italy and Spain.
But these events did not come out of the blue.