by Stephen Tall on February 22, 2013
The BBC reports tonight’s predictable news:
UK’s AAA credit rating cut to Aa1 by Moody’s
The UK has had its AAA credit rating cut by Moody’s, based on its expectation that growth will “remain sluggish over the next few years”. The ratings agency became the first to lower the UK from its highest rating, to Aa1. … The UK’s net sovereign debt was the equivalent of 68% of the country’s annual economic output, or GDP, at the end of last year. All three major credit agencies last year put the UK on “negative outlook”, meaning they could downgrade its rating if performance deteriorates. In his Autumn Statement in December, Mr Osborne acknowledged public finances were taking longer to rectify than planned, and admitted he would be forced to extend austerity measures by at least another year. Germany and Canada are the only major economies to currently have a top AAA rating. A downgrade of a credit rating does not necessarily substantially damage the ability to borrow.
As I pointed out here six months ago, George Osborne’s decision to hoist Britain’s economic credibility to the mast of the credit agency ratings was always a curious one — it wasn’t a mistake made by the Lib Dems’ Danny Alexander when he noted: “The credit rating is not the be-all and end-all.”
George would’ve been better off dropping the bombast and adopting Danny’s more savvy approach. Tonight’s news is unlikely to alter the fundamentals of the British economy — the markets had already priced-in this move, and the US downgrade had no real impact — but it is another blow to the Chancellor’s personal credibility.