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.’
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.
More Spectator for less. Stay informed leading up to the EU referendum and in the aftermath. Subscribe and receive 15 issues delivered for just £15, with full web and app access. Join us.