Duncan’s Economic Blog

Osborne & the Ratings Agencies

Posted in Uncategorized by duncanseconomicblog on October 12, 2009

Last week George Osborne said:

…you cannot have a sustained recovery until you show the world that Britain can pay its way.

And let me tell you, the world is watching Britain at the moment.

It is casting doubt on our country’s creditworthiness.

It is questioning our resolve to deal with our debts.

Today Moody’s said:

LONDON, Oct 12 (Reuters) – The focus on the health of Britain’s public finances during the past three weeks of party conferences has reinforced the stable outlook for the country’s triple-A credit rating, ratings agency Moody’s told Reuters.

Moody’s reaffirmed its top rating for British government debt on Sept. 9, and unlike rival Standard & Poor’s kept a stable outlook — something which lead UK analyst Arnaud Mares said had been justified by the growing political consensus for fiscal consolidation.

Britons better understand the need to reduce heavy public borrowing than the public in neighbouring countries with similarly stretched finances such as France, said Mares, who is also Moody’s lead analyst for French government debt.

“The outlook is as secure as it was previously, but the assumptions we have made over the past months have to some extent been vindicated by the messages that have been conveyed by senior politicians,” Mares told Reuters.

How to tackle Britain’s swelling budget deficit — which the finance ministry forecasts will hit 12 percent of gross domestic product this year, requiring 220 billion pounds of gilt issuance — is now a major theme in the run-up to a national election due by June.

The opposition Conservatives, who opinion polls predict will defeat Prime Minister Gordon Brown’s Labour Party, last week proposed freezing public sector salaries, raising the retirement age and cutting some benefits to reduce government spending. Brown also accepts the need to reduce the deficit, though he is concerned that solid growth returns before sharply tightening fiscal policy.

Mares declined to comment on which party offered the better proposals for reducing the budget deficit, saying all parties now understood the need for tighter fiscal policy. (my emphasis).

It seems to me that the ‘world is watching’ but that it’s saying that, even though Brown (correctly) wants  growth to return before any fiscal tightening, it is not ‘casting doubt on our creditworthiness’.


7 Responses

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  1. Tim Worstall said, on October 12, 2009 at 11:50 am

    Interesting reading of it. I would have emphasised differently:

    “it is not ‘casting doubt on our creditworthiness’.”…because……”the growing political consensus for fiscal consolidation.”

    • duncanseconomicblog said, on October 12, 2009 at 12:56 pm

      However we read it though Tim – the key point is that they are not “questioning our creditworthiness”.

  2. pablopatito said, on October 12, 2009 at 12:23 pm

    Is the world not saying “We know there will be a Tory government next year, and we like what they say”. Does the government have much, or indeed any, influence on what the market thinks will happen from May 2010 onwards?

    • duncanseconomicblog said, on October 12, 2009 at 12:57 pm


      I think Moody’s have been quite clear that they aren’t too concerned about which party does the tightening.

  3. VinoS said, on October 12, 2009 at 4:51 pm

    To be honest, should we take ratings agencies seriously – whether they give a good or a bad view of the UK? After all, they didn’t exactly understand the risks of securitisation of sub-prime mortgages…..

    • duncanseconomicblog said, on October 12, 2009 at 5:03 pm


      We only need to take them seriously to the extent that buyers of our debt take them seriously.

      But the general point is that Osborne’s claims simply aren’t true.

  4. […] will spank us.  In the other, they are lending us money at 2.5% for 10 years.  The Tories are persistently confused on this one, and love the drama of a potential default. Wow, things move quickly. Possibly related […]

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