Goldman Sachs boss says UK has no choice but austerity

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Media captionLloyd Blankfein: Cash for small businesses sitting idle

Lloyd Blankfein, the head of giant investment bank Goldman Sachs, has said the UK must stick with its austerity plan or face a negative reaction from global investors.

In an interview with the BBC, he said he would like it if the UK could ease the pace of the squeeze on spending.

But Mr Blankfein, Goldman's chairman and chief executive, said if you have a deficit that choice is taken away from you because markets will react.

He said the UK must stay the course.

"You would like at this part of the cycle not to cut, to push out austerity and not to shrink the economy," he said.

"But if you have a big deficit you lose that optionality. The choices get taken away from you."

Borrowing dips

Mr Blankfein's comments come a week after the IMF's chief economist, Olivier Blanchard, urged the UK to rethink its austerity policy in the face of continuing weakness in the economy.

The IMF also cut its UK growth forecast for this year to 0.7%, after saying in January that the economy could expect growth of 1%.

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Media captionLloyd Blankfein: Cash for small businesses sitting idle

Failure to re-boot growth has led two ratings agencies to strip the UK of its AAA top credit rating. A lower rating can lead to higher borrowing costs.

On Tuesday, official UK figures showed government borrowing for the 2012-13 financial year fell slightly to £120.6bn, down from £120.9bn the year before.

Helping business

Mr Blankfein made his remarks while on a visit to the UK, which also included a meeting with small businesses.

Goldman Sachs is an investment bank that does not lend directly to small businesses.

However, it began a scheme three years ago whose aim was to give owners of small and medium-sized businesses new skills.

In an interview with BBC Radio 4's Today programme, he said that his motivation for the project was to create jobs and "reach out on a different scale to that at which we are used to operating".

The credit crisis of the past five years has left small businesses short of bank funding as institutions have built up their reserves and have raised their lending standards.

Mr Blankfein said that banks were "afraid, for want of a better word".

"Businesses are starving for cash and banks have cash idle," he said.

But he added: "Lending money to business is one of the riskiest things you can do. What you do is send money out the door and you hope it comes back."

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