UK says to slash deficit now despite U.S. warning

LONDON (Reuters) - Britain needs to move quickly to reduce its budget deficit despite U.S. President Barack Obama’s warning about the perils of withdrawing economic stimulus too soon, Prime Minister David Cameron’s spokesman said Monday.

The government agreed with Obama’s comments, in a letter to fellow G20 leaders, on the need for flexibility in implementing fiscal policy, the spokesman said. Policy should be adapted to the specific circumstances of each country, he said.

“For some countries, such as our own, there is a need to get on and deal with the deficit more quickly,” he said.

Tackling the deficit effectively was essential to maintaining confidence in public finances, which would in turn underpin economic growth in the future, the spokesman said.

Chancellor George Osborne will unveil on Tuesday what is expected to be the toughest budget in 30 years as he seeks to reduce a deficit running at around 11 percent of Gross Domestic Product.

The opposition Labour Party has warned that sweeping cuts in public spending and welfare benefits could tip Britain back into recession. It argues that the government should wait until the recovery is stronger before launching into austerity measures.

Asked whether the government had a plan B in case Osborne’s budget caused unemployment to rise and growth to slow, the spokesman said the measures in the budget would be spaced out over the full lifetime of the newly elected parliament, or until May 2015.

In his letter to G20 colleagues ahead of a summit in Canada this week, Obama said the highest priority must be to safeguard and strengthen the recovery.

“We must be flexible in adjusting the pace of consolidation and learn from the consequential mistakes of the past when stimulus was too quickly withdrawn and resulted in renewed economic hardships and recession,” Obama wrote.

Cameron, who heads a coalition of centre-right Conservatives and centre-left Liberal Democrats, has rejected such arguments, saying that the more immediate threat to the British economy was the bulging deficit and the risk of a Greek-like debt crisis.

Reporting by Estelle Shirbon; editing by Patrick Graham