Osborne defends cuts as UK warned on credit rating


Osborne: "I think this is a reality check that Britain must not waver on dealing with its debts"

Chancellor George Osborne has defended continued spending cuts following a warning that the country's top credit rating may be downgraded.

Ratings agency Moody's put the UK on "negative outlook" due to the risk the eurozone crisis could affect growth and thus its efforts to reduce debts.

Labour said the government should ease off on austerity measures because they were "sacrificing" growth and jobs.

Mr Osborne disputed this, saying the UK "had to deal with its debts".

In its statement, Moody's said: "Any further abrupt economic or fiscal deterioration would put into question the government's ability to place the debt burden on a downward trajectory by fiscal year 2015-16."

The change to negative outlook implies a 30% chance of the UK losing its AAA credit rating within 18 months.

A lower credit rating could make it more expensive for the government to borrow money.

Prime Minister David Cameron said the UK's credit rating "matters because the most important thing is to keep interest rates low, to keep mortgage rates low".

Reality check

Moody's said it expected the government to meet its target of beginning to bring down net public sector debt by 2015-16.

It also forecast that the UK's debt would peak later, and at a higher level, than most other countries with the top triple-A rating.

The chancellor took the credit rating agency's comments were an endorsement of the government's approach.

"It was a reality check for the whole political system that Britain has to deal with its debts, that we can't waver in the path of dealing with our debts," UK chancellor George Osborne told the BBC.

Start Quote

Britain could go through all this austerity and still lose its Triple A, due to a slow or stagnant economy.”

End Quote

"This is yet another organisation - in this case a credit ratings agency - warning Britain that if we spend or borrow too much we're going to lose our credit rating," he added.

Shadow chancellor Ed Balls stressed that the government was not concentrating enough on economic growth - which leads to higher tax revenues and lowers the outlay on benefits - crucial to dealing with the UK's deficit.

"Unless you have growth, if your plan is unbalanced it becomes self-defeating and today is the first evidence that even the ratings agencies are waking up to the fact George Osborne's plan is not working," he told the BBC.

"I have said consistently and in the face of the views at times of ratings agencies, is that without growth, without jobs, you can't get the deficit down," he added.

'Little impact'
Crisis jargon buster
Use the dropdown for easy-to-understand explanations of key financial terms:
The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is minuscule.

BBC economics editor Stephanie Flanders points out that the downgrade warning comes from just one of the three credit rating agencies and suggests it is unlikely to have much of an impact on people in the UK.

But the move is important for the chancellor, she says, who focused on the importance of keeping a AAA rating when explaining the need for reductions in spending.

"One of the key reasons for cuts, for austerity, was to hold on to our credit rating, so it is hard for him to say it doesn't matter, as he has set so much store about it," our correspondent says.

Leading economist Jim O'Neill suggested that credibility with the markets in itself was not enough.

"The key issue is whether growth can be resurrected because of events outside of their control," Mr O'Neill, from Goldman Sachs Asset Management told BBC News.

"If you can't get growth, then by constantly tightening fiscal policy, it is not going to help growth.

What the agencies say about UK debt

  • Moody's: AAA, negative outlook. "Abrupt economic... deterioration would put into question government's ability to pay debt."
  • Fitch: AAA, stable outlook, but warns capacity to absorb shocks has "largely been exhausted".
  • Standard and Poor's: AAA, stable outlook, but "ratings could come under downward pressure" if coalition government abandons cuts.

"It might give some credibility, but to really, ultimately, save our credit rating we need credible fiscal policy and some growth."


Like personal credit scores, sovereign credit ratings are an indication of how risky it is to lend money to a country.

A high credit rating from the three main agencies, Moody's, Standard & Poor's and Fitch, implies that borrowing to fund public spending will be relatively cheap.

If the rating is lowered this can push up the interest rate on new borrowing for governments. But this is not always the case.

Start Quote

Politically, it is another sign that George Osborne is currently failing in his own terms - ie: in his efforts to cut the debt and the deficit ahead of all other economic goals”

End Quote

"It's all relative," said Laura Lambie from William de Broe

"We did see America being downgraded, they lost their AAA rating last year and that didn't have a huge detriment, in actual fact it was reasonably positive they are still seen as a safe haven when compared to other countries such as Greece and Spain, and I suspect Britain will be the same." she added.

The UK's "negative outlook" is the lowest level of warning offered by the agency - and can be followed by a "negative watch" implying a more than 50% chance of downgrade.

The agency said the UK faced three main risks to its top rating; slower growth and the possible impact on spending cuts, a sharp rise in borrowing costs due to inflation or a new crisis in the banking sector.

However, the agency noted the UK "continues to be well supported by a large, diversified and highly competitive economy, a particularly flexible labour market, and a banking sector that compares favourably to peers in the euro area".


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  • rate this

    Comment number 266.

    When faced with the crunch private industry reduced pay rather than have all redundancies.

    The public sector should do the same.

    Under Labour many jobs were paid more highly in the public sector and so they shouldn't complain too much.

  • rate this

    Comment number 265.

    We need more manufacturing I am told. Over and over again.

    Okay, fine - when you are ready. Nobody is stopping you (except the Chinese).

    Maybe some of you should consider a more eclectic plan.

  • rate this

    Comment number 264.


    "We need to be more productive per man hour to gain a competitive edge"

    What's the ultimate 'competitive edge' michael? 100% effort and 0 wages?

    I call that slavery michael, is that what you have in mind?

    It was tried before,how did that work out?

    Go to America and see what such retarded ideals produce - qualified workers hunting in bins for scraps of food

    Get off your knees and be a man

  • rate this

    Comment number 263.

    Predictable comments from no credibilty flatine Balls. The voting pattern I think maybe about to change in this country, where the politicos who promise the most, get the most votes. It is a situation where honesty is not the best policy (Look no further than Greece etc.) I was always told the Tories tell the truth, painful as it maybe sometimes. Condemn socialists to history please - no character

  • rate this

    Comment number 262.

    At least we're all in it together...

  • rate this

    Comment number 261.

    For the record - I am neither a Lab, Lib or Tory fan/voter......

    Regardless of how we ended up in the situation we face today the Govt's job is to get us out of it.

    The facts are clear, their course of action is making things worse, not better.......

  • rate this

    Comment number 260.

    keep going george, those who believe that running up more bills on the credit card and hope it goes away are daft.
    The negative outlook is due to the weak growth from the Euro, that is out of our hands

  • rate this

    Comment number 259.

    The credit ratings agencies are the tool of the financial elite who wish to deflect attention from the US. Their structural debt is unpayable and they print money to to stop their banking dollar ponzi scheme from collapsing. Austerity is the measure being used to enslave people futher to the notion that unbacked paper currency somehow has value. It is only a paper tiger.

  • rate this

    Comment number 258.

    It would be a good idea to spell 'waver' properly!

  • rate this

    Comment number 257.

    It's only 11.37 am and this is no longer a headline. Shame on you BBC.

  • rate this

    Comment number 256.

    Part of the same thing people mortgaging themselves up beyond there means and perpuating false growth in the housing market. Same issue as high streets sales falling the credit artificially boosted spending

  • rate this

    Comment number 255.

    NuLabor did no more than follow the pro-City de-regulation policies set in place by the previous Tory governments.
    Policies which Cameron and Osborne fully endorsed.
    The Tory Party web-site had a page calling for even less regulation of the banks and FSI.
    A page deleted when the Credit Crunch hit.
    All our political class fell for the de-regulation lobbying of the Banks.

  • rate this

    Comment number 254.

    If you spend spend spend you end up getting Greece !
    Ecomomic reality is here at last. We not only need to reduce the deficite but abolish it. Time the unions came in from fairytale land and admitted to their memebers that when jobs become uneconomic and must be reformed striking doesn't change that. That means some austerity even for public sector workers which, for them, is fully affordable.

  • rate this

    Comment number 253.

    We, the UK, really need to face the facts. Like most 'western' nations, we're flat broke. We've spent all the cash our grandparents' generation grafted for. The sooner everyone gets to grips with the simple truth that only sweat creates prosperity (and that financial services and the public sector don't, no matter how important they otherwise are), we will never get out of this extraordinary mess.

  • rate this

    Comment number 252.


    I think you'll find the winter of discontent was due to (yet another) collapse of capitalism - or was your history teacher a revisionist?

    What will you blame this time around? The unions have all but failed and now we're into spontanious rioting.

    Better - or worse?

    Unions only need to be groups of workers - not the stalinist entites that exist thanks to gov. legislation

  • rate this

    Comment number 251.

    243. Merkin Muffley

    Nothing to do with lack of investment and asset stripping perfectly good companies then. Get real.

  • rate this

    Comment number 250.

    Let's not forget that it's because of the banks that we are in this mess. And now another 'finacial institution' is putting the boot in. We need a radical change in the economy if we are to see growth and prosperity come back. I'm with Ed Balls on this.

  • rate this

    Comment number 249.

    So, just how are we going to get growth going again? Most of what I have heard comes down to just putting cash in peoples pockets so that they spend more hmm... The nation cannot afford to borrow any more thus growth has to be through what we sell to other nations. Problem is we don't make anything any more and the finance industry that paid for much of bill and hid this is in the cart. Gulp..!!

  • rate this

    Comment number 248.


    I used facts (which you haven't disputed), you used out of context conjecture.

    Ed Balls' remark that you quote related specifically to the imposition of a financial transaction tax that only applied to the EU. Ed Miliband's remarks were an admission that Labour should have introduced more regulation of balance sheets. George Osbourne was screaming out for less.

  • rate this

    Comment number 247.

    re 228 Thewritingisonthewall

    Don't be daft, the Unions lost the plot and were destroying their own industries. The nation was being crippled by strikes all over the place, there was an irresponsible attitude, and political motivation to undermine the Thatcher Government. We see this type of Union aggression today in Unison. We need to be more productive per man hour to gain a competitive edge.


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