Lambert Says U.K. Delay in Deficit Curbs May Hurt the Pound

Jan. 1 (Bloomberg) -- Richard Lambert, a former Bank of England policy maker now leading the Confederation of British Industry, said any delay in curbing the government’s budget deficit may lift interest rates and depress the pound.

“The government has not yet established a credible path back to fiscal stability,” Lambert said in a statement released in London today. “The longer this is delayed, the greater the threat to long-term interest rates and sterling.”

Chancellor Alistair Darling last month set out a plan to cut in half Britain’s budget deficit over the next four years, saying a quicker reduction may hurt the nation’s recovery from the worst recession on record. The deficit will peak next year at 13.2 percent of gross domestic product, the most in the Group of 20 nations, according to the International Monetary Fund.

Lambert also said the international banking crisis “is far from resolved.” While conditions at U.K. banks have improved, “there could be more aftershocks,” he said, adding that lending to companies is declining and that policy makers have yet to reform banking regulations.

“While another setback cannot be ruled out, the more likely outcome is that the economy will bump along the bottom for a little while before starting a fragile recovery driven by higher exports, investment in working capital, and a slightly stronger pattern of domestic consumption,” Lambert said.