Coffee House

Will the UK keep its AA1 rating until 2015?

25 February 2013

1:46 PM

25 February 2013

1:46 PM

Labour has been granted an urgent question in the Commons on the loss of the AAA credit rating this afternoon, and we can expect George Osborne to reiterate his comments over the weekend that this downgrade was a ‘clear message that Britain cannot let up in dealing with its debts’. But will he suggest that the UK can hold onto the AA1 status that it now holds with Moody’s until the end of this Parliament?

Announcing the downgrade, the agency said it didn’t expect any changes in the rating over the next 12-18 months. But it added:

‘However, downward pressure on the rating could arise if government policies were unable to stabilise and begin to ease the UK’s debt burden during the multi-year final consolidation programme. 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.’

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The AA1 rating isn’t by any means junk status and Moody’s said 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’. Indeed, as James explained on Friday night, the damage here is largely political (although Faisal Islam’s blog explores in greater detail whether this really doesn’t matter from an economic point of view), because Osborne set such store by the credit rating as a sign of success.

Today when I asked the Prime Minister’s official spokesman whether the government was confident that it could hold on to AA1 until the end of this parliament, he was notably evasive. He said:

‘I am going to stick to the answer I have just given: the Government is absolutely determined that it will continue to pay its way in the world.’

Chances are that Osborne won’t want to make any promises about his future success with credit rating: he’ll have learnt his lesson from this.


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Show comments
  • http://www.facebook.com/barbara.stevens.790 Barbara Stevens

    Who are these money grading companies anyhow? What proof have we they are intelligent enough to precidict any thing. The USA were not really touched by their downgrading, so why should we be? Its all media hype and panic talk by TV presenters, that makes it appear worse than it is. Close your mouths and write about something more important like suggestions to give us growth. We might be prepared to listen then.

    • Rhoda Klapp

      Who are they? The folks who brought on the great crash, that’s who. The outfits who graded repackaged mortgages as solid investments because their business model is to get paid by the issuers of junk to rate the junk. And when the issuers are the biggest of banks, you just cannot refuse them and stay alive.

  • Colonel Mustard

    Good old Labour – nothing like a bit of bare faced opportunism. Where have all the Labour rebuttal trolls gone? They are usually on to any Osborne story like fleas on a dog.

    • dalai guevara

      he is toast – don’t know but dogs don’t do toast.

      • Colonel Mustard

        Ah, but’s it never over until it’s over. Long runs the fox. The news of a great French victory at Agincourt travelled faster and further than the lists of their many dead.

        • dalai guevara

          The thing is, you don’t need to read the Guardian nowadays for the news to travel.

  • Adrian Drummond

    How bizarre. Labour gets our country into a financial pickle and then they crow when it proves difficult for us to extricate ourselves from their mess.

  • Andy

    Probably not. We all know what needs to be done: CUT SPENDING. It isn’t very complicated, but to do it means upsetting a lot of people and their vested interests. Perhaps a way forward is to abolish all taxes and all spending and then redo the whole lot. But that wont work either. Best idea is just to give up.

    • the viceroy’s gin

      Don’t give up. Vote for a politician like that one Italian candidate, whose entire campaign strategy is “F**k You”.

      I must check and see how he’s doing today.

    • http://www.facebook.com/barbara.stevens.790 Barbara Stevens

      Where do you suggest they cut from, people here are already starving and living in cold unheated homes often with children. May I suggest foreign aid, the EU, health tourists, matirnaty, where we pay more for foreign babies who live abroad. I could go on. They won’t do it as they all love the EU, liars and cheats we have leading us.

  • Russell

    How you underestimate ‘ordinary’ people Isobel. The electorate understand that the AAA rating only gives an indication about the economic state of a country, it is the rate of interest that is charged on loans to the country that matters and the UK rate is still at almost its lowest rate in centuries, has hardly fluctuated..

  • http://www.facebook.com/profile.php?id=100004981542519 Tom Tom

    “AA1 rating isn’t by any means junk status” To write that is inane. It is to reveal a total incomprehension of bond-rating categories. It is so far removed from “junk bond” status that it has only one rating higher than AA1 and that is AAA. The only issue attached to AAA-rating is George Osborne hubris. Who cares about Bond Rating agencies any way in a world where the global monetary system is a major disaster and bond markets have been socialised through QE ? The world is entering Global Socialism as Assrt Prices are inflated and manipulated by Central Bank debasement and households are wiped out by the Third Stage of Pump & Dump Monetary Policy where Bernanke does Greenspan Cubed

    • Archimedes

      Central banks care about the rating, because it determines what they can hold in FX reserves – thus, the drop in sterling.

      • http://www.facebook.com/profile.php?id=100004981542519 Tom Tom

        I think they want GOLD and they know Britain is No16 behind Portugal in gold holdings. These ratings only started in 1978 and in the USA they threaten and cajole when someone dares to downgrade them – Egan Jones learned how the Fed bites back.

        • Archimedes

          Gold isn’t as useful when it comes to FX intervention. What is the point in holding gold? If the worst comes to the worst are you going to set up a jewellery department at the BoE, and start flogging gold rings to the rich people that no longer exist?

          • http://www.facebook.com/profile.php?id=100004981542519 Tom Tom

            If you want a Currency based on a gold standard some people think gold a sine qua non. The only form of intervention where buying Sterling is goung to be of value to a Central Bank is to force Sterling upwards to allow Japan to devalue. Why would anyone want to hold Reserves in a Currency that the Bank of England can create at will and where the Treasury is busy monetizing Debt by raiding the Bank of England reserves on QE arbitrage ? You would have had long positions in Weimar Treasuries back in 1922 no doubt…………….http://www.globalfirepower.com/reserves-of-foreign-exchange-and-gold.asp

          • http://www.facebook.com/profile.php?id=100004981542519 Tom Tom
    • http://www.facebook.com/profile.php?id=100004981542519 Tom Tom
  • Rhoda Klapp

    I’m inclined to think that George has had enough of a go now and has not really done anything to be proud of. He does not appear to have a clue of how to bring about a recovery. Now, I am not advocating a return to the failed policies of the last lot, but I wonder whether there is not some way to drag us out of the position they got us into. What I am sure of is that to continue with policies which are not working because of obstinacy or fear of looking inconsistent isn’t a good idea. If he won’t change his policies, we must manage without him.

    • Archimedes

      The problem is that he might be a little too concerned about his own political reputation, and also a little too concerned about the strategic implications for the Conservatives. If he’s heavily concentrated on delivering a budget that doesn’t go awry, then he’s not going to be able to deliver a budget that is radical enough to change the fortunes of the UK – ironically, though, failing to deliver a radical budget will probably be the most politically damaging for him at this stage.

      A controversial budget is better than a budget that does nothing.

      • http://www.facebook.com/profile.php?id=100004981542519 Tom Tom

        The British Budget Pantomime is an irrelevance. The only way forward is to generate lots more family-owned businesses and keep them from being swallowed by corporates; and to create SME infrastructure in lending, and a proper functioning postal system and road network

        • Archimedes

          It’s not an irrelevance – it gives structure to the UKs economic policy. Not sure what you mean beyond that, but it seems a bit protectionist.

          • http://www.facebook.com/profile.php?id=100004981542519 Tom Tom

            A serious country would not have this pantomime but a proper budgeting process instead of party tricks and TV performances which create soundbites until days later someone actually reads the documentation slipped out at midnight on a Friday with all the small print. It is a Practised Deceit and central to the chaotic formulation of economic “policy” on this island. It is worthy of a Banana Republic. It has no coherence and is simply an exercise in eye-candy to distract from the fact that Britain has a clapped-out economy with low-wages and low-productivity which requires easy credit and property speculation to keep afloat

            • Archimedes

              Then you completely misunderstand the stability it provides. If there was not an annual budget process, then the government could about-turn on economic policy at any time. The kind of speculation that would appear in the media, at a time like this, would seriously destabilise a government – particularly a coalition government.

      • Gareth

        I think you’re right about Osborne’s concern with his own reputation as a strategist; he would rather hold course and wait for the economy to recover than to be seen changing tack, even if this returned the UK more quickly to prosperity. It seems strange to me that he would gamble on ‘being seen in the end to have been right all along’ when it would be far more politically effective to have actually sorted out the economy within a decent time-frame. It’s not governing in the national interest, but in Osborne’s own narrow self-interest.

    • http://www.facebook.com/profile.php?id=100004981542519 Tom Tom

      Time for a Substitution

    • http://www.facebook.com/barbara.stevens.790 Barbara Stevens

      I can’t think of a person who cold fill is weak shoes, can you, not much to choose from is there?

  • Archimedes

    The political issue is when the UK is downgraded by another agency, which it presumably will be. At that point, voters are not going to distinguish between “another agency”, they will just see the UK as having been downgraded twice.

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