Public spending cuts will not be scaled back to protect the economy from short-term shocks, cabinet minister Philip Hammond has insisted.
Amid uncertainty about whether the coalition would revise its plans in the event of a double-dip recession, the transport secretary made clear Whitehall departments would have to work within “firm and clear” four-year budgets.
He said any further stimulus to the economy would have to come from the Bank of England - probably in the form of quantitative easing, or printing money - rather than a loosening of fiscal policy.
His comments came after cabinet colleague Chris Huhne, the Liberal Democrat energy secretary, suggested the government’s massive cuts programme may have to be reined in if the economy entered another downturn.
But Mr Hammond, left, a close ally of George Osborne, said: “The plans that the chancellor will set out in his spending review statement on October 20 will set out a pattern of reduction for departments over the four years of the spending review, so departments will have clear and firm budgets.
“And our view has always been that fiscal policy should be set for the medium term, and monetary policy should be used to deal with any short-term shocks.”
Speaking to BBC1’s Andrew Marr Show, he went on: “The Bank of England has got monetary policy to deal with any short-term shocks to the economy, while our fiscal policy - which is about getting the structural deficit eliminated by the end of this parliament - should stay on track, because that’s the key message that markets have received that’s restored confidence, that’s got British interest rates down, that’s got the IMF giving us a clean bill of health and frankly that’s got our economy starting to get back on track for future sustainable growth.”