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Chancellor of the Exchequer Alistair Darling, brushing aside suggestions he act to curb the Treasury's budget deficit, said the U.K. government has the flexibility to support Bank of England efforts to stimulate the economy.

Darling said he will use his annual budget statement on March 12 to “raise growth'' and to “ensure the stability of the economy,'' according to the text of a speech to City of London bankers released by his office last night.

“Fiscal policy will continue to support monetary policy,'' Darling said. “We have low debt and historically low interest rates. We are able to do what is right to support growth in these uncertain times.''

The Institute for Fiscal Studies on Jan. 30 said Darling needs to raise taxes by 8 billion pounds ($15.9 billion) to meet deficit targets, a move that would constrain rather than stimulate growth. Britain's economy may grow at the weakest pace since the end of the last recession in 1992, according to a survey of economists by the Treasury.

The central bank will probably cut its key interest rate for the second time in three months this week, setting aside concern that inflation will accelerate, a survey showed. The nine-member Monetary Policy Committee will lower the rate by a quarter point to 5.25 percent on Feb. 7, according to 58 of the 61 economists in a Bloomberg News survey.

Inflation Target

The bank's Governor Mervyn King, who is required to keep inflation to 2 percent a year, has indicated that pressures on prices will keep the bank from following the Federal Reserve and slashing rates much further in the coming months.

Flagging economic growth probably will cut tax receipts and make it harder for Darling to reduce spending, raising the possibility that the government may not meet its aim of reducing the deficit, the IFS said. Darling has pledged to reduce the budget shortfall to less than 3 percent of gross domestic product and keep the national debt under 40 percent of GDP faxless payday loans.

Darling also said the government will resist calls to regulate the banking industry more closely following the run on deposits at Northern Rock Plc in September, the first in more than a century.

“We are determined to resist any changes that would put at risk the City's position as the world's leading financial centre,'' Darling said.

Northern Rock

The chancellor and Prime Minister Gordon Brown have repeatedly rejected accusations that Northern Rock's problems were the result of Britain's “light touch'' rules, even though lawmakers from all parties said the approach has failed. Darling and Brown have directed the blame to the subprime mortgage crisis in the U.S. and the international credit crunch.

On Jan. 26, the Treasury Committee of lawmakers from Britain's three main political parties concluded unanimously that the so-called tripartite system of overseeing financial institutions — involving the bank, the Financial Services Authority and the Treasury — failed in its duties to prevent trouble at Northern Rock. It said the FSA was slow to respond and the central bank held up efforts to aid money markets.

Darling warned bankers at today's speech that the responsibility lay with them to manage their companies properly. He urged banks to strengthen risk management systems and ensure checks and controls on staff are more rigorous.

“The primary responsibility for a firm's business is with its management,'' Darling said. “They need to manage risk and ensure compliance with the rules. Senior management has to ensure a sound business plan and to use that to know what their employees are doing.''

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