British interest rates are more likely to go up than down thanks to the success of the UK and US economies, George Osborne has said, as he toured China to foster closer political and business ties.
The chancellor told BBC Radio 4’s Today programme on Tuesday that a rise in interest rates signalled by Mark Carney, the Bank of England governor, reflected the “robust growth” of Britain’s economy, adding “the general signal coming from the Bank and the Federal Reserve in the US is that the exit from very loose monetary policy is going to come”.
The Bank’s chief economist, Andy Haldane, had recently suggested interest rates might have to remain low partly due to a slowdown in the Chinese economy.
Osborne said Britain had “the right people to make the call” adding “the governor has signalled, I think pretty clearly, the direction interest rates are heading”.
Osborne acknowledged that the Fed had defied expectations and kept interest rates low due to the slowdown in Chinese stocks.
He said interest rate setters “are always going to be sensitive to what is going on at that moment, but the general signal coming from the Bank and Federal Reserve is, because the economies have been growing robustly in the last couple of years, the exit from very loose monetary policy is going to come”.
Speaking before an address at the Shanghai stock exchange, Osborne said he would not become involved in “megaphone diplomacy” over China’s human rights record. Instead, he insisted the UK needed to embrace the Chinese economy, which he described as “a phenomenal part of the world economy”.
Asked if Britain was giving legitimacy to the Chinese government’s abuse of human rights, he said: “China is an incredibly important partner for us and there are so many tens of thousands of British jobs dependent on our business links with China.
“Do we disagree with China about human rights ? Yes we do. Does that mean we resile from our British values? Not at all. But is it not better to engage and talk about these things rather than stand on the sidelines and try and conduct some kind of megaphone diplomacy?”
He added: “We are two completely different political systems and we raise human rights issues, but that is not inconsistent with doing business.”
In his speech to the stock exchange, Osborne argued that even with slower immediate growth China would be the single biggest motor of growth across the world.
Osborne said the Chinese economy was undergoing a major transformation from an economy sustained by investment to an economy powered by consumption. “That is what the Chinese leadership call the ‘new normal’”, Osborne said. “That’s an enormous, tectonic shift. It will be bumpy. It will create challenges. It inevitably means a slower growth rate than the double-digit growth of the last decade. But if China continues to grow as the IMF forecasts, it would mean going from GDP of $11tn this year to a GDP of about $16tn in just five years.”
Osborne also said he would not dignify Michael Ashcroft’s unauthorised biography of David Cameron with a comment, adding that the British people had given a verdict on his premiership in May and that Britain’s success was due to its leadership.
Downing Street’s strategy is to ignore the book but indicate that Lord Ashcroft, the former Conservative deputy chairman, had demeaned himself and been blinded by Cameron’s refusal to give him a high-profile ministerial post in 2010 even though he had donated £8m to the party.
Some of the more lurid allegations in the book appear to lack any serious sourcing, Osborne said.
