The chancellor will use a speech in Cardiff to say that the turmoil in financial markets that saw 5% wiped off oil prices on Wednesday should act as an antidote to the “creeping complacency” that Britain is immune from what is happening in the global economy.
In a clear swipe at Jeremy Corbyn’s Labour party, Osborne will say: “Anyone who thinks it’s mission accomplished with the British economy is making a grave mistake. 2016 is the year we can get down to work and make the lasting changes Britain so badly needs. Or it’ll be the year we look back at as the beginning of the decline. This year, quite simply, the economy is mission critical”.
The chancellor’s address to business leaders in Wales follows a slackening in UK growth since last spring’s general election and a traumatic start to the new year on financial markets. These have seen steep drop in share and commodity prices amid concerns about weak growth in China, North Korea’s claim to have exploded a hydrogen bomb and the growing tension between Saudi Arabia and Iran, two of the world’s biggest oil producers.
“Last year was the worst for global growth since the crash and this year opens with a dangerous cocktail of new threats. For Britain, the only antidote to that is confronting complacency and sticking to the course we’ve charted.”
Osborne will point to slower growth in China, the recessions in Brazil and Russia, turbulence in the Middle East and the drop in commodity prices that has seen a two-thirds drop in the cost of crude oil, as potential hazards to the UK.
“Yes – there’s good news here and right across the UK. That’s because we have a national economic plan that backs business and skills, and is delivering growth, high employment, and rising wages,” the Chancellor is expected to add.
“But as we start 2016, I worry about a creeping complacency in the national debate about our economy. A sense that the hard work at home is complete and that we’re immune from the risks abroad.”
In a move that is likely to trigger further cuts in petrol prices, the cost of Brent crude dropped by 5% during trading in London to stand at $34.60 (£23.66) a barrel – its lowest level for 11 years.
Share prices were also down, with London’s FTSE 100 closing 64 points lower at 6,073 and New York’s Dow Jones industrial average dropping below the 17,000 level in early trading.
Oil’s slide began in east Asia, where Beijing’s decision to allow its currency, the yuan, to weaken prompted concerns in financial markets that China’s economy is performing much less strongly than suggested by official statistics.
The selling then continued in Europe as dealers calculated that the tension between two of the world’s biggest oil producers, Saudi Arabia and Iran, would prevent the Opec cartel from agreeing on production cuts that might stabilise prices by bringing supply into line with demand.
The decline carried on in North America following news that US oil stocks had risen by 10% in the past week – the biggest increase since 1993. At one point, Brent crude was down almost 6% on the day at levels not seen since 2004. Analysts believe the price could tumble below $30 a barrel in the coming weeks.
The tumbling oil price has made refined products, including petrol, cheaper. The average price of unleaded fuel fell by more than 4p a litre in December to 102.89p and reduced the cost of filling up a family-sized car by more than £2.
Four supermarkets cut their petrol prices to below £1 a litre last month and the RAC motoring organisation said on Wednesday that pump prices were likely to fall further.
Osborne said falling oil prices would be good for British consumers and businesses, but bad for North Sea producers. The economy had performed “better than almost anyone dared to hope” and as a result it had slipped down the list of everyday concerns.
“But the biggest risk is that people think that it’s ‘job done’. Many in our politics encourage this, irresponsibly suggesting that we can just go back to the bad old ways and spend beyond our means for evermore. Though the year is only seven days old, already we hear their predictable calls for billions of pounds more debt-fuelled public spending. They reject all the reforms we propose to deliver better-quality public services for less taxpayers’ money.
“Today I want to issue this warning: unless we finish the job of fixing the public finances, to get Britain back into the black by finally spending less than we borrow, all of the progress we have made together could still easily be reversed.”
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