UK loses AAA credit rating

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**Orlanth**

Not good news. Moody's have announced a reduction of the Uk's credit rating from AAA to AA1, this will affect public borrowing and put Sterling under pressure.

http://www.ft.com/intl/cms/s/0/cbb20b34-7d45-11e2-adb6-00144feabdc0.html#axzz2LiCgJ3IO

Kiran Stacey, Political Correspondent, Financial Times wrote:
Downgrade hits at Osborne’s credibility

George Osborne has suffered his biggest blow yet as chancellor after the UK lost its triple-A rating, which he had repeatedly promised to protect.
Moody’s, the rating agency, downgraded the UK one notch to Aa1 late on Friday night in the most serious critique yet of the government’s entire economic plan.
The chancellor pledged to plough on with the coalition’s cuts programme despite the move, saying: “Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it.”
But Moody’s’ decision is highly politically damaging for the chancellor, who has pinned his credibility on retaining the trust of the bond markets. Last July, he hailed the UK’s credit rating, calling it “a reminder that despite the economic problems we face, the world has confidence that we are dealing with them”.
The Conservative manifesto in 2010 promised: “We will safeguard Britain’s credit rating with a credible plan to eliminate the bulk of the structural deficit over a Parliament.”
With the current structural deficit now likely now to remain until 2018 at the earliest, both of these promises have now been broken.
Ed Balls, Labour’s shadow chancellor, last night said: “This credit rating downgrade is a humiliating blow to a prime minister and chancellor who said keeping our triple-A rating was the test of their economic and political credibility.”
Mr Balls said: “Moody’s themselves say the main driver of their decision is the weak growth in Britain’s economy. Their judgement is in response to nearly three years of stagnation, a double-dip recession, billions more borrowing as confirmed this week and broken fiscal rules. This is why the chancellor is fast running out of credibility.”
Britain becomes the latest in a long line of countries to lose its triple-A rating, with France and the US having recently undergone a similar fate. But Treasury sources pointed out that both of those countries were downgraded a notch and given a negative outlook, whereas the UK has been moved to a stable outlook, reducing the possibility that the chancellor will have to face a further damaging downgrade in the near future.
The rating agency delivered a gloomy forecast of the UK’s future growth, predicting that the economy would continue to stagnate for at least another two years. Its statement said: “The continuing weakness in the UK’s medium-term growth outlook, with a period of sluggish growth which Moody’s now expects will extend into the second half of the decade.”

Moody’s added that the downgrade was a result of “the UK’s high and rising debt burden, [and] a deterioration in the shock-absorption capacity of the government’s balance sheet, which is unlikely to reverse before 2016.”
It comes after a disappointing auction of the 4G mobile phone network made it unlikely that the chancellor would meet his promise of reducing the deficit this year.
Mr Osborne insisted, however, that the Moody’s analysis justified the government’s fiscal consolidation programme. The rating agency said: “The stable outlook on the UK’s Aa1 sovereign rating reflects Moody’s expectation that 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.”
Mr Osborne said: “Britain faces huge challenges at home from the debts built up over many many years, and it is made no easier by the very weak economic situation in Europe.
“We are not going to run away from our problems, we are going to overcome them.”
Moody’s’ decision is unlikely to have a material effect on the UK’s borrowing rates, which have risen slightly recently in line with other AA-rated countries, but remain low in comparison to much of Europe.

But it will bolster the argument of Mr Balls, who has long said the government’s cuts programme risks undermining the country’s creditworthiness by suppressing growth and lowering tax receipts.
“The issue is no longer whether this chancellor can admit his mistakes but whether the prime minister can now see that, with UK economic policy so badly downgraded in every sense, things have got to change.
“In the Budget the government must urgently take action to kick-startour flatlining economy and realise that we need growth to get the deficit down. If David Cameron and Mr Osborne fail to do so and put political pride above the national economic interest we face more long-term damage and pain for businesses and families.”
It may also add to latent tensions within the coalition government, which has so far remained publicly united behind Mr Osborne’s economic programme. Some senior Liberal Democrat ministers have, however, admitted private concerns about the Treasury’s unwillingness to loosen the purse strings to boost growth, and the move by Moody’s is likely to strengthen their hand.

As our financial crisis was caused by the likes of Ed Balls and Gordon Brown, who defered the debt interest until 2012, their crowing now is insulting. Many are wondering if the economy can be fixed.

**Palindrome**

Orlanth wrote:

As our financial crisis was caused by the likes of Ed Balls and Gordon Brown, who defered the debt interest until 2012, their crowing now is insulting. Many are wondering if the economy can be fixed.

Thats right kids its all the last governments fault, nothing whatsover to do with the current government at all.

**Ouze**

Dear United Kingdom,

It's not so bad, guys, it happens to the best of us.

Your friend,
The United States of America

**ExNoctemNacimur**

Unless you're Sweden or something.

**KalashnikovMarine**

How many nations still have a AAA credit rating?

**ExNoctemNacimur**

According to wiki, 14 (including Hong Kong - bit iffy that one), but it's not been updated - it says that the UK is AAA. So 13, if the other countries still have their rating.

**Mr. Burning**

Palindrome wrote:
Orlanth wrote:

As our financial crisis was caused by the likes of Ed Balls and Gordon Brown, who defered the debt interest until 2012, their crowing now is insulting. Many are wondering if the economy can be fixed.

Thats right kids its all the last governments fault, nothing whatsover to do with the current government at all.

No, Its somehow Thatchers fault too.

**Palindrome**

Mr. Burning wrote:

No, Its somehow Thatchers fault too.

She did sow the seeds of much of the current difficulties, or at least her government did, when the financial services market were deregulated in the mid 80's. It was very succesful at the time of course but that doesn't really help us now.

**Albatross**

Palindrome wrote:
Orlanth wrote:

As our financial crisis was caused by the likes of Ed Balls and Gordon Brown, who defered the debt interest until 2012, their crowing now is insulting. Many are wondering if the economy can be fixed.

Thats right kids its all the last governments fault, nothing whatsover to do with the current government at all.

Instead of just parroting the line, explain to us how the current government reducing public spending to 2006 levels has caused a global depression.

**Palindrome**

Albatross wrote:

Instead of just parroting the line, explain to us how the current government reducing public spending to 2006 levels has caused a global depression.

I will do if you will first explain how the last Labour government caused a global depression.

**Albatross**

Palindrome wrote:
Albatross wrote:

Instead of just parroting the line, explain to us how the current government reducing public spending to 2006 levels has caused a global depression.

I will do if you will first explain how the last Labour government caused a global depression.

By failing to regulate exotic financial instruments such as the Credit Default Swap when they had the chance. They only really came to prominence during New Labour's reign.

**Pacific**

It was actually David Bowie that caused the global depression (seriously! Look it up

)

ExNoctemNacimur wrote:
According to wiki, 14 (including Hong Kong - bit iffy that one), but it's not been updated - it says that the UK is AAA. So 13, if the other countries still have their rating.

Not really iffy, an unbelievable amount of money still moves through Hong Kong.

**ExNoctemNacimur**

No, by a "bit iffy", I meant that it's not really an independent country.

**Palindrome**

Albatross wrote:

By failing to regulate exotic financial instruments such as the Credit Default Swap when they had the chance. They only really came to prominence during New Labour's reign.

That assumes that A, this would have actually prevented a global depression and B, that the Conservatives wouldn't have done exactly the same thing.

The excuse that it was "all Labours fault" is becoming increasingly threadbare and never was particularly accurate anyway.

New Labour certainly had its role to play but then so did past Tory governments for trusting the markets a little too much.

Lots of different people, organisations and governments are to blame and it is sheer stupidity to try and pin the financial crisis on any single one of them.

**Howard A Treesong**

I remember the New Labour government blaming the previous Tory government for things even into their third term. It's what governments do, rightly or wrongly, blame someone else. Everyone was enjoying the merry go round during the Labour government lending, borrowing and making heaps of money, it's not like the Tories spent years trying to enforce regulation on the banks, their mates were doing well out of it.

Already Osborne is wriggling with people in his department trying to spin it as some sort of success that they kept the AAA rating for as long as they did, and draw attention away from the fact that he rather staked his reputation on maintaining it permanently. I'm still more scared of Michael Gove though.

**SilverMK2**

Hey, if they actually managed to get some of the tax they were owed by thieving corporations and multimillionaires they would be rated AAAAAAAAAAA

**BryllCream**

Orlanth wrote:

As our financial crisis was caused by the likes of Ed Balls and Gordon Brown, who defered the debt interest until 2012, their crowing now is insulting. Many are wondering if the economy can be fixed.

Okay.

There is no financial crisis. The financial crisis is over, and had a boat load of causes - mainly deregulation by the USA, but also in our own country. What we are experiencing at the moment is a recession, which would almost certainly have happened regardless of what the last government did.

This is a graph of spending/debt:

Notice that Labour's deficit was lower than average, in fact was lower than it was when the economy was booming under Thatcher.

edit - also notice how grossly inaccurate that deficit forecast is.

**Orlanth**

BryllCream wrote:

This is a graph of spending/debt:

Acrtually those figures conceal the truth.

John Major acted to clear the UK's debt, a condition that Tony Blair inherited. remember that economic choices have deferred effects.

The dip in 2000 to 2001 is partly caused by a drop in taxation paid for by selling off the Uk's gold reserves, for the private benefit of New Labour to buy the 2001 election. Brown sold our gold reserve at a low price to sell it fast, the long term consequences of devoiding our gold reserve were not relevant and the fact we got a poor deal for our gold was not relevant either to them. Once we hasd no gold reserves our long term prospects were uncertain because we had no solity to base our economy and was therefore more susceptible to market fluctuations, however to Blair the long term consequences were someone else problem.

The jump in 2008 was due to the squander spree that Brown as prime minister started. Much of that money actually went missing and numerous civil service sections chiefs made formal complaint at the increased spending. Again the consequences to the economy were not relevant, Brown was trying to buy his election. This is why the massive borrowing in 2008 and 2009 was with deferred interest, yes we committed to extra payment for the best payments to be deffered until 2012.

These two decisions taken entirely for party political interest irregardless of national interest are the cause of our economic nightmare. I would go as far as to say that New Labour sabotaged our economy for personal gain. This isn't socialist hating rhetoric. Thatcher, Callaghan, Major, Health and Wilson could all be trusted to do what they thought was right for the country, from either a right or left wing perspective. Whether their outlook was helpful or harmful was dependant on personal taste. New Labour was different, it didn't follow the model of left or right wing democratic government, it followed the model of an authoritarian one party state where the party is what matters not that nation. its about time that people realised this. Socialism, Conservatism are two sides of a coin, Old Labour made serious economic errors, from a right wing perspective, but it could not be considered deliberately self destructive. New Labour is something else, it is loyal only to itself interest irregardless of the national cost, it has more in common with a dictatorship than a democratic party in its social outlook and the Labour party that wants to get back in hasn't changed its tune.

Unless people realise what they had become and how far they were willing to sacrifice national interest for personal interest we will be lucky to have an economy like Greece after their next term in power. in fact Greecs is in the mess it is in, because it had the same ethos as New Labour, but didn't have a G7 economy to squander to pay for it. It is estimated that it will take 60 years to pay back the borrowing from 2008-9, yet because the wallets are feeling thepinch now the voters are getting edgy now and are lashing out at the government of the time rather than the cause of this mess. Which was the perosnal benefit New Labour gained at the cost of a debt interest dividend others must pay.
If you need further convincing look at what Ed Balls is saying he will do to put the economy on track, its a rehash of Gordon Browns policy, and can be summed up as borrow enough to have a few years in the command chair then leave everyone else to pick up the pieces, so long suckers.

**BryllCream**

I don't even know where to begin with that. I think I'll just leave you to it.

**Ketara**

BryllCream wrote:
I don't even know where to begin with that. I think I'll just leave you to it.

The majority of what was said was accurate.

New Labour inherited balanced books from their Tory predecessors. The economy had already been primed for growth under Major, and the amount of pain suffered under Thatcher's era of 'housewife economy' (not spending more than you bring in if it can be avoided), meant that the country was in a very good state economically speaking when Blair hit the field. Even that chart above shows the deficit being in the positive at that stage of the game.

Whilst the global economic upheaval and bankers problems would have happened regardless, we would have been in a significantly better position to roll with the blows were we not crippled by such high amounts of public spending. A huge chunk of it is tied up in PFI contracts, interest in on loans, and other sundry costs racked up under Labour that we're still paying for till this day.

New Labour's economic policies were basically the concept of 'spend today, let tomorrow take care of itself'. And its placed us in a far position as a result.

IIRC, Gordon Brown said before the election it turns out, that he thought that the whole problem would blow over within several months. And all he had to do was borrow a few extra billion to ride it out. Narrow escape there, eh wot?

**Orlanth**

BryllCream wrote:
I don't even know where to begin with that. I think I'll just leave you to it.

This is what New Labour is counting on.

Blair used the traditional socialist vote to get in in 1997, then dumped them for the middle classes, yes he got the middle class vote also.

New Labour made such a total mess that most of the traditional socialist vote is is complete denial over it. It's so bad that it cant possibly be anyones fault but the Tories, the alternative is unthinkable and leaders prefer when men do not think. Especially as the areas of collapse are over issues that normally the socialists claim the traditional moral high ground, such as health and welfare.

**Albatross**

Palindrome wrote:
Albatross wrote:

By failing to regulate exotic financial instruments such as the Credit Default Swap when they had the chance. They only really came to prominence during New Labour's reign.

That assumes that A, this would have actually prevented a global depression and B, that the Conservatives wouldn't have done exactly the same thing.

Well, since the financial crisis and the ensuing debt crisis was triggered by the collapse of sub-prime debt trading, which lead to the collapse (and near collapse) of some of the world's most powerful financial institutions, yes it probably would have prevented a global recession. And I'm not interested in what the Conservatives would have done if they were in power, because they weren't in power, therefore it's irrelevant what they would have done.

**Kilkrazy**

In 2010 government spending on debt service was about 6% of central spending and a much smaller percentage of total spending.

http://www.ukpublicspending.co.uk/uk_year2010_0.html

Whilst it would have been nice to spend that money on something else, it wasn't a crippling burden.

**Orlanth**

Kilkrazy wrote:
In 2010 government spending on debt service was about 6% of central spending and a much smaller percentage of total spending.

http://www.ukpublicspending.co.uk/uk_year2010_0.html

Whilst it would have been nice to spend that money on something else, it wasn't a crippling burden.

This was because Gordon Brown deferred the interest, as explained before.
New Labour cost us extra further debt in order to keep a large bulk of the repayments off the books until 2012.
So those figures are largely meaningless, they also dont account for compounded inflation, which of course is at much higher premiums due to deferred repayment.
But then, all that must be the Tories fault because Labour wasn't in power in 2012.

**Kilkrazy**

Whatever, it wasn't a crippling burden so people cannot say that it was.

If PFI is such a bad idea, which actually I agree with, why are the current government continuing with it?

**sebster**

Moody's drop in the UK debt rating is the kind of thing that sounds really meaningful, but is actually worse than meaningless. The impact on UK finances is likely to be zero (when S&S dropped the US rating the cost borrowing actually got cheaper). Seriously, evidence is pretty clear the markets are at best indifferent to largely political ratings adjustments given to national governments.

This should, if anything, be yet another indication that austerity is a really, really stupid policy. It hasn't worked, there's been surge in economic activity driven by confidence or a reduction in crowding out (neither of which make any damn sense at all in a recession). I mean seriously, poor old Keynes, you name a damn town after him but you won't actually follow his economic advice.

**George Spiggott**

sebster wrote:
I mean seriously, poor old Keynes, you name a damn town after him but you won't actually follow his economic advice.

Are you talking about Milton Keynes? It's not named after John Maynard Keynes.

http://en.wikipedia.org/wiki/Middleton,_Milton_Keynes

**Ketara**

Kilkrazy wrote:

If PFI is such a bad idea, which actually I agree with, why are the current government continuing with it?

Because unfortunately, we tend to be contractually locked into it. A change in administration does not allow us null and void all unsatisfactory business agreements, however much I wish we could.

**BryllCream**

Kilkrazy wrote:

If PFI is such a bad idea, which actually I agree with, why are the current government continuing with it?

Because it allows billions of pounds of extra spending, without being counted as government borrowing. Additionally in sectors that have been part-privitised (thinking specifically of health here, though I assume it's the same in other sectors), PFI allows competing trusts to build more than they can afford - which then draws funds away from neighbouring, more sensible trusts. So even if a trust didn't want to use PFI, it could still end up losing money from the government because of its neighbours PFI spending splurges.

Except now the chickens are coming home to roost, and some (many?) trusts are heading towards backrupcy because of it. But still, from the point of view of an individual trust PFI is the prefferred procurement practice.

**Fenrir Kitsune**

They should put Kirby in charge. He knows what to do.

BTW Ketara - whats pic in your sig?