George Osborne’s admission that he will not meet his target to have debt as a percentage of GDP falling by 2015/16 has serious consequences for one of his central messages. The Autumn Statement has led credit ratings agency Fitch to warn of a possible downgrade. The agency said:
‘Missing the target weakens the credibility of the fiscal framework, which is one of the factors supporting the rating.’
Ratings agencies aren’t the be-all-and-end-all by any means, and Osborne could quite easily point to just how wrong they were before the crash, giving collateralised debt obligations high ratings. But the problem is that the Chancellor tends to wheel out their approval to shore up his own position, pointing to the UK’s AAA rating as a sign that he is pursuing the right economic policy. If Fitch does strip Britain of its AAA rating, it will mean the Chancellor will have to change his message. He was quizzed about this on BBC Breakfast this morning, and said:
‘We’re borrowing money at the moment at some of the lowest interest rates in British history, because when people look around the world, and they look at countries to invest in, they think Britain is a good investment. So look, the credit rating is important and the market is important, and the reason why this matters to people watching this programme is because if you don’t have credibility, if you’re not able to show the world that you can pay your way, then interest rates go up for the Government – that means taxpayers have to pay more to fund the debt – but also interest rates in the economy go up, mortgages go up, small business rates go up, and one of the things we’ve been able to do as a government is keep those rates very low because the world has confidence in us.’
Expect more damage limitation exercises like the one attempted by Danny Alexander in August, in which Treasury ministers suddenly discover a new cynicism about the verdicts delivered by Fitch and other organisations.