UK Brown: Deflation Is Main Concern In Short Term

The U.K. government will do whatever is necessary to revive growth, with deflation the main danger in the short term, Prime Minister Gordon Brown said Wednesday.

"I think in the short term everybody is concerned about the problems that could come from deflation," Brown said in an interview with The Wall Street Journal in New York.

Brown said his government is doing "what is necessary to resume growth in the economy," through fiscal and monetary policy and fixing the banking system.

The prime minister said he believes governments of the Group of 20 industrialized and developing nations will sign on to taking similar action at the upcoming G20 leaders' summit in London April 2.

"Nobody is suggesting that we will come to the G20 meeting and put on the table" national budget plans, he said.

"What we are suggesting is that we have, together, to look at what we have done so far cumulatively...what's the effect of quantitative easing and then say what should happen next. And I see a consensus not a disagreement on that."

Brown's government Tuesday received a warning from Bank of England Governor Mervyn King that there seems to be little room for the government to launch further fiscal stimulus efforts, on top of the GBP20 billion effort already undertaken.

Brown brushed off differences with King on the issue, saying the governor has signed on to the G20 finance ministers' communique calling for policy makers to take whatever monetary and fiscal policy action is needed to revive growth.

U.K. Chancellor of the Exchequer Alistair Darling will lay out his budget April 22. The government hasn't yet said whether it will seek to implement a second fiscal boost. Brown said that, on monetary policy, many central banks have already moved to very low interest rates and quantitative easing. He also said that, while European Central Bank interest rates are "a lot higher" than in the U.K. and the U.S., his "expectation is that they will bring them down further."

The Bank of England's benchmark interest rate stands at 0.5%, while the ECB's refinancing rate is 1.5% and the U.S. Federal Reserve's target funds rate stands close to zero.

On trade, Brown said the Doha round of talks isn't dead, despite the many deadlines that have come and gone.

He said the biggest stumbling block to an advance - differences between India and the U.S. - is "solvable" and said "people around the world are agreed" on the need for a new trade deal.

He also reiterated his view that protectionism "is the road to ruin."

Brown pointed to the absence of trade credit as one of the "big problems" for trade. The April G20 summit is expected to produce an initiative to address this.

The U.K. prime minister said that, while the short-term economic focus will be on deflation, longer-term inflationary threats like higher oil prices, once global growth resumes, will need to be dealt with.

"That is a problem we're going to have to look at again...We really have to be better at looking at how we can make agreements that can deal with the most volatile of commodities that affect the most vulnerable of people," he said.

The interview came on the second leg of a global tour by the prime minister, who took office in 2007, ahead of the April London summit.

Brown's Labour party must face an election by mid-2010 and is behind in the polls, raising the stakes for a successful outcome to the April 2 summit. Brown, who spoke at the European Parliament Tuesday, travels to Brazil and Chile later this week.