U.K.’s Javid Says Low Rates a Signal Governments Should Invest

(Bloomberg) --

Low borrowing costs are a sign that governments should be boosting their capital spending and are the reason the U.K. has reworked its own fiscal rules, according to Chancellor of the Exchequer Sajid Javid.

Under its new strategy, the British government can invest up to an additional 100 billion pounds ($131 billion) over the next five years, Javid told a panel at the World Economic Forum in Davos, Switzerland. He encouraged other countries to do the same.

“We can borrow for 30 years at almost minus 2% in real terms,” he said. “I believe rates will stay low for long. It’s almost like a signal to the government to invest in infrastructure, invest in the future, whether it’s road, it’s rail, it’s broadband, it’s R&D, and to boost economic productivity.”

He added that day-to-day spending should be sustainable, matched by taxes and remain in balance.

Separate data published Wednesday showed Javid presided over the continued easing of austerity last month as departmental spending rose at its fastest pace for any December since 2003. Britain is loosening the purse strings after almost a decade of budget cutting that has brought down the deficit to under 2% of economic output from 10% in the aftermath of the financial crisis.

Javid said that any decision on whether to lower interest rates further is for the Bank of England to make. Speculation officials will cut rates to support the economy has been mounting ahead of their Jan. 30 policy announcement and markets now see a reduction as more likely than not.

“Growth is too low,” Javid said. “We need to get up to U.S. levels of growth, gradually pushing our growth rate up. It’s much easier said than done, but because of the political and economic stability we have, the policies we have, I think that can be done.”

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Brian Swint, Andrew Atkinson

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