Brown says UK can remain stable despite credit crisis

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KAMPALA, Nov 24 (Reuters) British Prime Minister Gordon Brown warned today that the global credit crunch would hit the US and European economies, but said Britain could steer a stable course through the financial turbulence.

''There is absolutely no doubt that the American economy now will slow. It will have an effect on the European economy over these next few months,'' Brown told a news conference on the sidelines of a summit of the 53-nation Commonwealth in Uganda.

''It is probably the first quarter of next year that will see the biggest impact on the American economy, particularly house-building and the housing market,'' he said.

Europe's economy was likely to grow more slowly in the first part of next year than it has this year, said Brown, finance minister for a decade before becoming prime minister in June.

''What I'm saying about Britain is that it's possible for us, having taken the right decisions on monetary policy ... to steer a course of stability through these difficult times,'' he said.

At the start of the year, Britain had ''potentially a big inflation problem,'' Brown said.

The Bank of England had acted to counter inflation by raising interest rates and the government had also acted, Brown said, saying that one of the reasons inflation had since fallen was a low public sector pay settlement.

The credit crunch that started with problems in the US sub-prime mortgage market has claimed a victim in Britain as mortgage lender Northern Rock suffered the country's first bank run in more than a century.

Northern Rock is estimated to have borrowed about 51.41 billion dollars from the Bank of England since it was forced to turn to it for funds in mid-September.

POOR BUSINESS MODEL Brown blamed the problems squarely on Northern Rock's business model rather than pointing to any more widespread problem. ''Northern Rock is a bank where effectively the business model it was following was found to be deficient,'' he said.

The Northern Rock crisis and a government blunder in losing millions of people's personal data has severely dented Brown's popularity and the ruling Labour Party trailed the Conservatives by six points in a poll published today.

Brown declined to make any forecasts about the British housing market or to say whether any other British financial institutions could be affected by the credit crisis.

Brown prescribed three steps he said could make a difference to the world economy over the next year.

They included keeping interest rates and inflation low; reaching a world trade deal and reforming world financial institutions to provide a better ''early warning'' system to alert about problems in the world economy.

Commonwealth leaders discussed today how to reform the International Monetary Fund, the World Bank and other institutions ''to make them better equipped to deal with the global financial challenges of the future,'' Brown said.

Trade was also on the agenda and Brown sounded optimistic of a breakthrough in the long-stalled Doha round of trade talks.

After meeting Indian Prime Minister Manmohan Singh, Brown said he hoped for a world trade deal within weeks.

If agreement was reached, he said Britain was prepared to provide ''substantial resources'' to developing countries to help them improve their infrastructure so they can increase trade.

Reuters TB VP0050

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