The meaning of 'negative' for Mr Osborne and the UK


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Officials are trying to appear "disappointed, but not surprised'" by Moody's decision to put the UK's sovereign credit rating on negative outlook.

This suggests that the UK now has a roughly 30% chance of losing its triple A rating in the next 18 months.

Moments after the decision was released, George Osborne rushed to claim it for his side, in the arguments about austerity and growth. The decision, he said, was "a reality check" for anyone who thought Britain could "duck confronting its debts".

The ratings agency said it was worried that slow economic growth would make it more difficult for the coalition government to bring Britain's public debt under control. It is also concerned about the continuing impact of the crisis in the eurozone, which has caused it to downgrade six other European countries as part of the same reassessment.

Economics editor Stephanie Flanders: Negative outlook "means they're concerned"

A further two countries with triple A ratings - France and Austria - have been given the same treatment as the UK.

In the contorted vocabulary of sovereign ratings, a "negative outlook" is much better than a "negative watch" - which suggests the chance of a downgrade in the next year or two is well over 50%.

Some will consider the decision odd, coming after a couple of months when the fear in European financial markets has been lifting, and the outlook for the US and broader global recovery has been getting a fair bit brighter. The UK government's cost of borrowing is still at an historic low.

Others will say it is simply irrelevant, these days, what a single ratings agency thinks about the UK. Didn't the reaction to the US downgrade by Standard & Poor's last summer, and even the same agency's mass downgrade of eurozone countries last month, demonstrate that the days of worshipping at the AAA altar were past?

It will be interesting to see whether the financial markets agree.

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The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is minuscule.

Until then, it's worth asking whether Mr Osborne is right to suggest that all this is one in the eye for Ed Balls and the Plan B school.

It is certainly true that there is no hint, in Moody's statement, that it would like to see the UK ease up on austerity. Quite the opposite.

It says that one of the things that would make it downgrade the UK over the next year or so would be if the economic outlook worsened significantly, and the government decided to ease up on cuts.

The two other big risks on the horizon, incidentally, are that the government suddenly finds it hard to refinance its debt, perhaps due to higher than expected inflation; or there are further problems in the banking sector, leading to further, expensive, bailouts.

However, you might argue that the basic fact of this decision is damaging to the government - even if the fine print is not.

After all, Moody's has provided an unhelpful reminder that austerity alone does not guarantee market confidence, or a Triple A credit rating.

When I interviewed the head of sovereign ratings at Fitch, David Riley, on the day of the Autumn Statement in November, he warned that Britain's debt stock was now going to peak at a very high level, for an AAA country.

In Mr Riley's view, the Treasury had lost quite a lot of room for manoeuvre in those lower growth and higher borrowing forecasts. Eventually, he thought the top rating might well come into question.

Moody's said something similar in December. Now its analysts have decided to take this further step.

Mr Osborne's fiscal tightening is necessary, in their view. But the statement asserts that squeezing the budget has inevitably - along with other factors - had an impact on growth. And it suggests that slow growth, in turn could make it much harder for the chancellor to prevent UK debt rising too far, too fast.

Put it another way, Britain could go through all this austerity and still lose its Triple A rating, due to a slow or stagnant economy.

So no, Ed Balls will not find support for Plan B in Moody's statement. But he will surely not miss the opportunity to point out that preserving Britain's top credit rating has long been a central plank of Mr Osborne's case for cutting the deficit faster than Labour.

For this ratings agency, at least, Britain's triple A is at greater risk now than at any time since Mr Osborne first walked into Number 11.

Stephanie Flanders Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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  • rate this

    Comment number 23.

    A long-overdue wake-up call. The UK is heavily in debt and only afloat thanks to the incompetence of euro area politicians skewing market perceptions. Total UK debt is running at over 500% of GDP, cf. Spain 350%, USA/Germany 275%. Inflation is high, but any rate rise will see one hell of a crash. The UK really is flying by the seat of its pants.

  • rate this

    Comment number 22.

    What Stephanie so conspicuously fails to mention is that immediately before the last election at least one of the ratings agencies already had the UK on a negative warning. And had Labour returned to power, with its 'borrow, boom and bust' mentality, our credit rating would have been downgraded within weeks. That is for certain. Osborne has bought the country time to sort out Labour's mess.

  • rate this

    Comment number 21.

    We didn't join the euro because we were told we could be masters of our own fate if we stayed outside. Now we hear that the Eurozone matters after all. I used to think we should join, but now I think we would be too disruptive, pontificating all the time.

  • rate this

    Comment number 20.

    UK Government spending is still more than 50% of GDP. This would have been considered totalitarianism in days gone by and is not sustainable in the longer term, as the Southern Europeans are now discovering. We need to switch the emphasis back to the productive economy and bigger cuts are needed to achieve this.

  • rate this

    Comment number 19.

    Long overdue, if further downgrades stop a massively indebted nation from borrowing more, then it's a good thing. You don't solve a debt problem by borrowing more, whatever Carol vorderman might say.

  • rate this

    Comment number 18.

    It is clear that economics doesnt accomodate humanity, its a mathematical construct with accumulation rather than distribution as the driver. We must have austerity 'for the markets' .I await the first cull of unemployed to reduce a countries borrowing costs (a much leaner, more efficient economy). Move to ecological models of resource use and production (the science, not the 'greenie' version)

  • rate this

    Comment number 17.

    We're going through a hard time. I'm lucky, I'm working

    We need to get unemployment down without fiddling the numbers by putting people in 'disability' or whatever.

    We need to give the unemployed proper jobs - even if they're part time, not just inflate the poorly managed, inefficient public sector payroll with non-jobs

    Things are looking a little better but the country needs oomph

  • rate this

    Comment number 16.

    Following an interactive guide featured recently to which country owes what to which other country, would it be too simple for countries just to cancel out debt they owe to each other , thereby clearing the waters to actually see who is left with what net debt ?

  • rate this

    Comment number 15.

    Unfortunately the UK is still paying out too much for the welfare state, and until this is cut and the money funneled in to reviving industries then we can only ever go deeper into debt.

    We need to completely revise the tax system to encourage inwards investment in industry and the UK worker needs to shed its reputation for militant unionism and show the world we are worth hiring.

  • rate this

    Comment number 14.

    I heard Stephanie Flanders commenting on this last night as the news came out; Labour doesn't need to send out Ed Balls to comment on this - Flanders, as always, does their work very well for them. Most of her comment was was Labour would say instead of saying what it would mean to the UK.

  • rate this

    Comment number 13.

    Ed Balls ... He knows more about Ponzis than Plan B !!!! Do we really want to be rescued by Bernie Madoff? We now know that Gordon Brown and Ed Balls systematically ran up and hid a huge mountain of debt and liability whilst claiming they were "prudent". Balls and Milliband (both of the) have too much blood on their hands. They reek of guilt. Labour won't revive without a proper clean out.

  • rate this

    Comment number 12.

    AAA for a country that has 1 trillion in goverment debt,
    3 trillion if you include all debt
    Prints money on a whim
    rising inflation
    and no real manufacturing industry

    strange rating if you ask me.

  • rate this

    Comment number 11.

    somehow you have to put pressure on people to make things improve.

  • rate this

    Comment number 10.

    What surprises me is that anyone pays attention to these credit agencies anymore. Weren't they the ones that passed out AAA ratings as if they were going out of fashion without doing any due diligence on who they 'awarded' them with? So, the same people that created the mess we're now in are the ones that have a 'negative outlook' on the people trying to get us out of the mess. Conspiracy?

  • rate this

    Comment number 9.

    It's not osborne's policies that failed yet he's been in government for a few years only and you blame him already well that isn't the truth the last 30 years has been a failure of all policies and even since before then the church of england I happen to know has a pipe organ it's impoverished congregation could not afford to complete in a hundred years. It's all of them. They are awful people.

  • rate this

    Comment number 8.

    "The truth is, [ratings agencies] don't have a clue."

    Does anyone in the lauded financial sector have a clue? It does all rather look laughable, a variation on the Crimson Permanent Assurance advert at the start of The Meaning of Life.

  • rate this

    Comment number 7.

    Osborne would claim that his policies are working no matter what was said. What is patently obvious is he is running out of people, countries & organisations to blame for his failed policies. Rising unemployment = reduced tax take & increased expenditure, if he hasn't yet worked that out, he is not fit to be chancellor of the exchequer. Whats his next move? Stagflation!

  • Comment number 6.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 5.

    I live in britian and these are the problems I have encountered. Council Tax doesn't make a profit. The government borrows money to pay the bills it invented council tax or council tax benefit. They have a process of raking back what they hand out. They mess around and you're running around crazy with anxiety. You end up with a fiver to live on. And a pipe organ. They get oil revenues too.

  • rate this

    Comment number 4.

    The headline should read 'Moody's revises UK credit rating outlook', as this is what it is, not a revision of the rating itself (ref: Moody's Rating Symbols and Definitions' reference guide). Happy to correct this piece of non news. Of more significance perhaps is the Spanish/Italian downgrade, where the UK exposure totals nearly 130bn euro. Still, expect only a modest fall on market open.


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