Economy seen surviving turmoil

LONDON - Britain is well placed to weather the current instability on the world's financial markets, Prime Minister Gordon Brown's spokesman said on Tuesday.

With the government facing a barrage of criticism over its handling of the economy, Brown's spokesman said the current turmoil was a global phenomemon that originated in the United States.

"Britain remains well placed to withstand this uncertainty in the global economy and of course we will have to remain vigilant," the spokesman said after ministers discussed volatile market conditions at a 90-minute cabinet meeting.

"That is why we will take whatever action is necessary to maintain stability," he told reporters.

Fears have grown that the U.S. economy is about to slip into recession and stock markets tumbled across the globe in response on Monday, raising expectations that central banks will need to cut interest rates soon.

European stocks saw their steepest fall since September 11 2001 on Monday and fell heavily again in early trading on Tuesday. But market talk of emergency interest rate cuts by central banks helped steady prices by midday.

"The fundamentals of the British economy remain sound. Inflation remains low and we have had 61 consecutive quarters of economic growth," Brown's spokesman added.

Brown's bid to calm nerves in highly unpredictable markets came on the day that central bank Governor Mervyn King is to make his first major speech of the year.

He is under fire for his handling of the Northern Rock bank crisis and faces pressure to cut interest rates from their current level of 5.5 percent to quell market jitters.

The Treasury says that loans of almost 25 billion pounds it has made available to the Northern Bank since last September could be converted into bonds guaranteed by the government, in a bid to ensure a private sector takeover actually happens.

"Our aim throughout this process is to ensure the best deal for the British taxpayer and ensure the stability of the British economy," Brown said while on a trip to New Delhi.

Brown took over from Tony Blair as Prime Minister last June after ten years waiting in the wings as finance minister.

He was at first tempted by buoyant opinion poll ratings to contemplate calling a snap election but changed his mind at the last moment. The election is now not expected until 2010.

The resurgent opposition Conservatives roundly mocked Brown and accused him of dithering.

The double-digit opinion poll lead Brown enjoyed over the Conservatives at the start of his premiership has now been reversed as bad news piles upon bad news.

Northern Rock suffered the first run on a British bank in over a century, house prices are falling, consumer confidence is fragile, retail sales are weak and the government has been hit by a string of embarrassing administrative blunders.

The public finances moved deeper into the red last month, recording the biggest deficit for the month of December since records began. The current account deficit has risen to a record 5.7 percent of GDP, even bigger than in the U.S, adding to investor bearishness on the pound.