Friday, February 22, 2013
A UK ratings downgrade
Posted by David Smith at 11:30 PM
Category: Thoughts and responses

It was only a matter of time before the UK lost a Triple-A credit rating that has been held since Moody's first assigned it in 1978. The loss of the Triple-A by one of the three main rating agencies has been on the cards since America lost hers in August 2011 and was predicted by many (including me) for this year.

The trigger for the downgrade was George Osborne's December move, endorsed by the Bank of England the International Monetary Fund, to ditch his target for debt to be falling as a percentage of GDP by the end of the parliament. Moody's saw this as a softening of the commitment to fiscal consolidation.

The loss of the Triple-A would have been more serious in 2010, ahead of the US downgrade, and was a serious possibility had not the coalition, or a re-elected Labour government, beefed up the fiscal consolidation strategy. As it it, the best that can be said is that Osborne & Co delayed the downgrade. Their target now, like a relegated football team, is promotion back to Triple-A.

Does it matter? On its own, no. But the state of British politics in general, and Tory politics in particular, is pretty fractious. Coming alongside uncertainty about the Bank of England and monetary policy, and its wavering commitment to low inflation, which has weighed heavily on sterling, it is not good news.

It is a reminder that the UK needs genuine, supply-side led growth. And that UK policymakers need to get a grip. The Moody's statement is here.