UK loses AAA credit rating

Scottish Political Editor

Sunday 24 February 2013

CHANCELLOR George Osborne yesterday refused to admit he had broken a Conservative manifesto promise to "safeguard Britain's credit rating", despite the UK losing its gold-plated status for the first time in 35 years.

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By Tom Gordon Scottish Political Editor

Moody's credit ratings agency lowered its assessment of the UK's creditworthiness from AAA to Aa1 on Friday, the first time the UK has been moved off the hallowed rating since 1978, and warned of several years of "sluggish" growth ahead.

Labour said the Chancellor had suffered a "humiliating blow", given he had made maintaining the AAA rating a cornerstone of Treasury policy. However, Osborne insisted the UK's credibility was intact. A lower rating can make it more expensive to borrow from the bond markets, a factor which can feed into higher interest rates and more expensive mortgages. The other big credit-rating agencies, Standard & Poor's and Fitch, still have the UK on AAA, but with a "negative outlook". Asked if he had broken his commitment to protect Britain's rating, Osborne said: "I've consistently argued that Britain has a debt and deficit problem, that we've got to tackle that head on, that we've got to take tough measures to do that, and I think people understand that. "In the end, the test of our credibility is there every day in the markets when we borrow money on behalf of this country from investors all around the world. "At the moment we can do that very cheaply with very low interest rates precisely because people have confidence that we have got a plan. We've got to stick to that plan and we are going to deliver that plan." Osborne claimed the UK was faring better than many European countries, and that Labour's plans would only increase borrowing and make a bad situation "very, very, very much worse". But Shadow Chancellor Ed Balls said Osborne had suffered a "humiliating blow", and called the downgrade a "very, very bad moment" for him politically. "What the credit rating agencies are doing is reflecting the reality: an economy which is not growing, a deficit which is getting bigger, families in real stress and a government which is ploughing on regardless with a plan which is not working." SNP Finance Secretary John Swinney said Osborne had blundered by slashing capital spending in a "vigorous austerity programme" when he should have maintained it to sustain growth. "What an independent Scotland would do, by any margin, would be to take a much more assertive position on delivering growth, on encouraging the expansion of the economy to generate greater revenues and repair public finances and that's the type of virtuous cycle that credit rating agencies like to see from governments." Danny Alexander, LibDem Chief Secretary to the Treasury, said the finances of an independent Scotland would be far less secure than Swinney suggested, as the country would have "no track record" on international money markets, and would have to pay a premium to borrow. Scottish Tory finance spokesman Gavin Brown said: "Scotland is in a much stronger position to weather the economic storms by being part of the UK." Scottish Labour's Cathy Jamieson, the Shadow Economic Secretary to the Treasury, added: "With separation things will only get worse. This [the downgrade] isn't an argument for independence; it's an argument for a Labour government." Numerous economies have seen similar downgrades since the 2008 recession, although Germany and Canada remain AAA.

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UK loses AAA credit rating

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