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Osborne vows to stick to Coalition's economic plan despite loss of Britain's triple A credit rating
George Osborne has vowed to stick to the Coalition’s economic plans even after Britain lost its cherished AAA credit rating amid concern about weak growth and rising debt.
David Cameron has 'full confidence' in the Chancellor, Downing Street said Photo: EDDIE MULHOLLAND
By James Kirkup, Deputy Political Editor
10:30PM GMT 22 Feb 2013
212 Comments
In a symbolic blow to the Government’s economic plans, Moody’s, one of the biggest global credit ratings agencies, downgraded Britain.
The agency said it had acted because of “continuing weakness in the UK's medium-term growth outlook”, the risk that the Government will fail to hit its targets for reducing the deficit and the UK's “high and rising debt burden”.
However, Moody’s predicted that on its current course, the UK will eventually regain its AAA status. Any relaxation in the deficit-reduction could lead to another downgrade, it suggested.
Mr Osborne insisted that the Coalition will not change course on the economy, saying the downgrade made it all the more important to stick to attempts to cut Britain’s deficit.
“Tonight we have a stark reminder of the debt problems facing our country - and the clearest possible warning to anyone who thinks we can run away from dealing with those problems,” Mr Osborne said.
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“Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it.”
He added: “We will go on delivering the plan that has cut the deficit by a quarter, and given us record low interest rates and record numbers of jobs.
Credit ratings assess a government’s ability to repay its loans, and can help determine the interest rate governments pay to borrow. Britain had been rated AAA, the highest possible rating, but is now rated Aa1, one notch lower.
Despite its role in financial markets, the loss of the AAA rating is likely to have more political than economic consequences.
Many economists question the credibility and the ratings agencies say that the importance of a country’s rating to it borrowing costs is much less significant than in earlier decades.
Politically however, the downgrade could be significant.
Mr Osborne has previously named the UK rating as a vital “benchmark” of a government’s economic credibility, and suggested that retaining it meant that the Coalition’s plans enjoyed the confidence of the financial markets.
But the Chancellor last year started to downplay the importance of the rating and in December he suggested that the interest rates on Government bonds – gilts – are a more important measure of credibility.
Labour’s John Mann, a member of the Treasury Select Committee, said the downgrade had left Mr Osborne “fatally wounded.”
He said: 2The UK loss of our AAA rating is the ultimate judgement on George Osborne's economic policy. Why? Because the Chancellor's entire strategy is based on the concept of sound money and the sovereign credit rating is the only independent arbiter of this.”
The US and France have already lost their AAA ratings without seeing their borrowing costs rise
The Treasury’s independent Office for Budget Responsibility said last year that the loss of Britain’s AAA credit rating might not have much impact on the public finances.
Mr Osborne said he took some comfort in the Moody’s conclusion that the the UK's basic creditworthiness remains “extremely high” because of the fundamental strengths of the economy.
The agency also suggested that Britain will, in time, regain its AAA status.
The Aa1 rating “reflects Moody's expectation that a combination of political will and medium-term fundamental underlying economic strengths will, in time, allow the government to implement its fiscal consolidation plan and reverse the UK's debt trajectory,” the agency said.
It also suggested that slowing down the deficit-reduction programme could lead to another downgrade.
“Moody's could also downgrade the UK's government debt rating further in the event of an additional material deterioration in the country's economic prospects or reduced political commitment to fiscal consolidation,” it said.
George Osborne has vowed to stick to the Coalition’s economic plans even after Britain lost its cherished AAA credit rating amid concern about weak growth and rising debt.
David Cameron has 'full confidence' in the Chancellor, Downing Street said Photo: EDDIE MULHOLLAND By James Kirkup, Deputy Political Editor
10:30PM GMT 22 Feb 2013
212 Comments In a symbolic blow to the Government’s economic plans, Moody’s, one of the biggest global credit ratings agencies, downgraded Britain.
The agency said it had acted because of “continuing weakness in the UK's medium-term growth outlook”, the risk that the Government will fail to hit its targets for reducing the deficit and the UK's “high and rising debt burden”.
However, Moody’s predicted that on its current course, the UK will eventually regain its AAA status. Any relaxation in the deficit-reduction could lead to another downgrade, it suggested.
Mr Osborne insisted that the Coalition will not change course on the economy, saying the downgrade made it all the more important to stick to attempts to cut Britain’s deficit.
“Tonight we have a stark reminder of the debt problems facing our country - and the clearest possible warning to anyone who thinks we can run away from dealing with those problems,” Mr Osborne said.
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“Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it.”
He added: “We will go on delivering the plan that has cut the deficit by a quarter, and given us record low interest rates and record numbers of jobs.
Credit ratings assess a government’s ability to repay its loans, and can help determine the interest rate governments pay to borrow. Britain had been rated AAA, the highest possible rating, but is now rated Aa1, one notch lower.
Despite its role in financial markets, the loss of the AAA rating is likely to have more political than economic consequences.
Many economists question the credibility and the ratings agencies say that the importance of a country’s rating to it borrowing costs is much less significant than in earlier decades.
Politically however, the downgrade could be significant.
Mr Osborne has previously named the UK rating as a vital “benchmark” of a government’s economic credibility, and suggested that retaining it meant that the Coalition’s plans enjoyed the confidence of the financial markets.
But the Chancellor last year started to downplay the importance of the rating and in December he suggested that the interest rates on Government bonds – gilts – are a more important measure of credibility.
Labour’s John Mann, a member of the Treasury Select Committee, said the downgrade had left Mr Osborne “fatally wounded.”
He said: 2The UK loss of our AAA rating is the ultimate judgement on George Osborne's economic policy. Why? Because the Chancellor's entire strategy is based on the concept of sound money and the sovereign credit rating is the only independent arbiter of this.”
The US and France have already lost their AAA ratings without seeing their borrowing costs rise
The Treasury’s independent Office for Budget Responsibility said last year that the loss of Britain’s AAA credit rating might not have much impact on the public finances.
Mr Osborne said he took some comfort in the Moody’s conclusion that the the UK's basic creditworthiness remains “extremely high” because of the fundamental strengths of the economy.
The agency also suggested that Britain will, in time, regain its AAA status.
The Aa1 rating “reflects Moody's expectation that a combination of political will and medium-term fundamental underlying economic strengths will, in time, allow the government to implement its fiscal consolidation plan and reverse the UK's debt trajectory,” the agency said.
It also suggested that slowing down the deficit-reduction programme could lead to another downgrade.
“Moody's could also downgrade the UK's government debt rating further in the event of an additional material deterioration in the country's economic prospects or reduced political commitment to fiscal consolidation,” it said.