By Jason Douglas and Ainsley Thomson
LONDON--The International Monetary Fund's recent criticism of
the U.K.'s austerity program conflicts with its general advice to
its members and won't persuade the government to change its plans,
a U.K. Treasury minister said Tuesday.
In an interview with The Wall Street Journal, Greg Clark also
said that, despite clashes over financial regulation, European
Union officials recognize that it is "palpably in the interests" of
the bloc that London remains an important center of global
financial services activity.
The IMF last week said given the economy's weak performance
since the middle of 2010, the U.K. should consider slowing the pace
of its austerity program, which is the central plank of the
coalition government program.
Official figures for gross domestic product to be released
Thursday may show the economy contracted for the second straight
quarter in the three months to March, its third recession in five
years.
The IMF's comments came ahead of its annual review of the U.K.
economy, which involves a visit by its economists and discussions
with Mr. Clark and his colleagues at the Treasury.
Mr. Clark on Tuesday appeared puzzled by the IMF's criticism,
saying the U.K.'s program is in line with the fund's view that the
deficit should be reduced by about 1% of GDP each year, while the
pace of that adjustment can be altered if the economy weakens.
"I think we have shown flexibility," Mr. Clark said. "In terms
of [the IMF's] overall view of the importance of fiscal
consolidation and the pace that they recommend around the world, we
are broadly in line with it."
Data published Tuesday showed the budget deficit excluding
exceptional items fell only modestly in the fiscal year ending
March, reflecting weaker-than-expected growth in the economy over
that period.
The criticism from the IMF came ahead of Fitch Rating's decision
Friday to deprive the U.K. of its prized AAA credit rating. But Mr.
Clark said the existing austerity program is the "right approach,"
an indication that despite recent setbacks for policy makers, the
government is unlikely to change course.
The U.K. was one of the first countries to embark on a sweeping
program of spending cuts and tax rises to tackle a huge budget
deficit incurred during the financial crisis, making it a
poster-child for austerity.
Government ministers fear that any deviation from the prescribed
plan will undermine their credibility among voters and in the eyes
of international investors.
As financial secretary, Mr. Clark's is the government's point
man in the City of London, the British capital's financial
district.
He acknowledged the City's reputation has been hurt by the
taxpayer bailouts of banks in 2008 and 2009, and scandals including
the revelation that Barclays PLC (BCS) and Royal Bank of Scotland
Group PLC (RBS) tried to manipulate benchmark interest rates.
An overhaul of regulation has put the Bank of England back in
charge of supervising the financial sector, a role it lost in 1997,
and big banks have been told to "ring-fence" their retail arms from
the activities of their investment units. One of the aims of these
reforms is to lure new business by demonstrating that the City is
properly policed, Mr. Clark said.
"It's important domestically to rebuild trust, but actually
there will be a premium for those jurisdictions that can show in
the future that they have learned the lessons of the past and have
taken robust and dependable measures to justify confidence."
Many Britons, including members of Mr. Clark's Conservative
Party, fear that London's status as Europe's pre-eminent financial
center is under threat from EU efforts to toughen regulation of the
sector.
The U.K. has found itself at odds with its EU counterparts over
proposals to limit bankers' bonuses and impose a tax on financial
transactions. It has gone to court over a European Central Bank
demand that clearing houses handling large volumes of
euro-denominated business be located within the 17-nation euro
zone, which doesn't include the U.K.
Mr. Clark said that despite these disagreements European
officials London's importance to the EU as a whole. Some of the
EU's proposals have lacked clarity and precision, he added.
If the U.K. opposes European financial rules, it is because it
fears they could imperil the competitiveness of London and the EU
as centers of global financial activity at a time when they are
facing challenges from up-and-coming rivals in the Middle and Far
East, Mr. Clark said.
Write to Jason Douglas at jason.douglas@dowjones.com and Ainsley
Thomson at ainsley.thomson@dowjones.com