UK's loss of AAA credit rating largely symbolic, says Vince Cable

 

Mr Cable said the government was having to deal with a massive "overhang of debt".

Vince Cable has said the UK's loss of its AAA credit rating is "largely symbolic" and there are "positive" signs for the economy.

The business secretary agreed that attempts to reduce the deficit while boosting growth were proving "tricky".

But he said the measures were "working slowly" and rejected calls for the pace of cuts to be slowed or accelerated.

Labour say the downgrade is a "humiliation" for the coalition and ministers must change course.

Ratings agency Moody's cut the UK's top rate to Aa1 on Friday.

The agency, which was the first to downgrade the country's rating since 1978, said expectations were that growth would "remain sluggish" over the next few years and the government's debt reduction programme faced significant "challenges".

Asked about the downgrade, Mr Cable likened credit ratings agencies to "tipsters" and part of the "background noise we have to take into account", suggesting they had a "pretty bad record" on economic and corporate forecasting.

He said the US and France had both survived similar cuts to their ratings in the past.

"It is largely symbolic," he told the BBC's Andrew Marr programme.

"In terms of the real economy, there is no reason why the downgrade should have any impact...These things do not necessarily affect the real economy but they do reflect the fact that we are going through a very difficult time."

'Last chance saloon'

Mr Cable said efforts to reduce the deficit while also boosting growth were working, but there were "a lot of pressures in the opposite direction" which meant it the recovery was taking longer than anticipated.

The government would maintain its current course, he added, rejecting calls for more extensive cuts as "utterly counter-productive" and labelling calls for an alternative Plan B in which the deficit reduction strategy was fundamentally overhauled as "a bit juvenile".

"What I am concentrating on in my job in government is factors that create real substantial long term growth. In other words skills training, supporting manufacturing, supporting exports, investing in science. These are the things that really matter."

CREDIT-RATING AGENCIES

  • Private-sector firms that assign credit ratings for issuers of debt
  • A credit rating takes into account the debt issuer's ability to pay back its loan
  • That in turn affects the interest rate applied to the security (eg a bond) being issued
  • A credit downgrade can make it more expensive for a government to borrow money
  • AAA-rating is the best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is minuscule.

"There are some positive things happening," he added - with the rate of employment, export growth and business start-ups all rising.

Amid suggestions that sterling could be heavily sold when financial markets open on Monday, Conservative MP Kwasi Kwarteng warned against a "kneejerk reaction" and said the downgrade should have already been "priced into" foreign exchange calculations.

Mr Kwarteng told the BBC that he would like to see more done to generate growth, including further cuts to corporation tax, but the government had "generally the right approach" on the economy and Mr Osborne should stay as chancellor.

However fellow Tory, Adam Afriyie, suggested the party could lose the next election unless it took decisive action, starting in next month's Budget.

Writing in the Mail on Sunday, the MP - touted by some as a future leadership candidate - said the coalition "is about to enter the last chance saloon" and must consider a radical programme of tax cuts, including phasing out employers' national insurance contributions.

"How do we view the people who follow their dreams, build businesses, create products, employ people and, yes, make money? In general, not very well at all. We devalue their contribution, sneer at them and spend our time looking for ways to make life even harder.

"This has to stop. If we're to achieve sustainable growth we need to stop beating up the only people who can solve our economic problems."

'Change course'

Labour said people's living standards would continue to be squeezed and the deficit would continue to rise until Mr Osborne changed direction and increased investment on job creation, infrastructure and industry.

"How many more signs does he (George Osborne) need before he realises their economic plan is failing and is making things worse and he needs to change course," its deputy leader Harriet Harman told the Andrew Marr programme.

The UK is at risk of slipping back into recession for the third time since 2008.

The economy grew in the third quarter of last year, boosted by the impact of the Olympics, but shrunk again by 0.3% in the last three months of 2012 and would enter a triple dip recession if it contracted in the first quarter of 2013.

Germany and Canada are the only major economies to currently have a top AAA rating, as much of the world has been shaken by the financial crisis of 2008 and its subsequent debt crises.

 

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  • rate this
    +3

    Comment number 124.

    The only policy this Government has is blame it on the last useless lot, that is not a strategy for solving the UK's massive problems. Unfortunately the tribal politics on her show that the UK will continue to slid down the world pecking order as fast as a downhill skier. Only a revolution that sweeps the entire British establishment into the gutter will have any chance of success.

  • rate this
    -1

    Comment number 123.

    Dave No 7 has got it completely wrong. We have a growing number of people in work so, other things being equal, would expect increased fuel use. It is down because of the encouragement given to more efficient cars, through the road tax system. It will probably continue to go down as this bites harder, whilst the economy grows.

  • rate this
    -1

    Comment number 122.

    @48.Ex Tory Voter
    "It is largely symbolic". Yep - of Tory failure, *by their own measure*. Is there a single Tory policy that has worked, and not cost a fortune in the process of producing failure? (unless you count channelling public money
    directly to the pockets of big business.
    Hear, Hear, Sir/Madam. Whole-heartedly concur.

  • rate this
    +2

    Comment number 121.

    If you're borrowing more money in 5 years Mr. Cable than Labour did in 13 then isn't it about time you started accepting responsibility for your own failings rather than keep blaming Labour?

  • rate this
    +2

    Comment number 120.

    I'm no Tory but I'm glad they are in charge now while we are going through such hard times,it makes me shudder to think what a mess we would be in under labour,we couldn't afford another 4years of those crackpots giving our tax money away to all manner of lunatic schemes and scroungers

  • rate this
    +12

    Comment number 119.

    The problem is simply this.

    The economy has moved from one of country-wide manufacturing where the state owned and controlled utilities and commodities to one of finance centred on a square mile in the City of London.

    Our utilities and commodities have been sold off to foreign companies.

    They enjoy profits at our expense and unfortunately it is they who decide if and when to grow our economy.

  • rate this
    +5

    Comment number 118.

    "employment and export growth were rising as was the rate of business start-ups"

    Employment rising with part time jobs only.

    Exports rising on weak £ but exchange rate means higher fuel costs for everyone else = less disposable income for all

    Business start ups rising as people use redundancy pay instead of accepting low paid part time jobs, but how many will survive once redundancy runs out ?

  • rate this
    +5

    Comment number 117.

    George Osborne can now say;

    "I am working hard to clear up the mess they left behind...................and I made even worse"

  • rate this
    +5

    Comment number 116.

    When France lost its AAA the comments section on the story on this website was filled with high-rated comments spewing a pathetic, childish chauvanism and predicting the end of France as a world power before giving our government a good hearty slap on the back for the great work it was doing. Presumably these people are having a lie in this fine Sunday morning?

  • rate this
    +9

    Comment number 115.

    Colchie: #76. The "blame Labour" line is old and it's time the Govt learned responsibility.

    And yet Labour are still blaming Maragret Thatcher for everything, 22 years after she left Downing Street. Kettle calling Pot. Report colour status. Over.

  • rate this
    0

    Comment number 114.

    CJFargo 72
    Errr, are you totally deluded? Or do you believe all the Tory propaganda in the Press from the likes of sleazy Murdoch et al?
    We had GROWTH under Labour and a AAA rating. We also had LESS borrowing as tax receipts were higher. The Party Of Unemployment are borrowing MORE and printing more money too. What is QE if not borrowing in disguise?
    Yet they manage a tax cut for the rich !!!

  • rate this
    -1

    Comment number 113.

    8. golfghost
    "Take a leaf out of Icelands book.?".

    Which leaf would that be.
    The 35% Currency devaluation?
    State Control of the Banks?
    Suspension of the Stock Market?
    Defaulting on overseas deposits?
    Constitutional change?
    Or debating joining the EU?

    You are offering a fag packet solution to a Trillion pound problem.

  • rate this
    +4

    Comment number 112.

    "largely Symbolic"...a bit like everything that spews from liberal democrats mouths.

  • rate this
    +1

    Comment number 111.

    According to one of many credit rating agencies throughout the world the UK isn't as credit worthy as it once was, hence this non story. It appears that all the others think that we're fine or do I not understand it?

  • rate this
    +4

    Comment number 110.

    After the boasts about retaining AAA suddenly it's inconsequential.
    As to Tory vs. Labour, a plague on both their houses.
    Until we have a Democracy where voters choose who to vote for, not "The Party and Money" we'll get this naive "my kingdom for my seat" bunch of twerps on both sides.
    Reform the Lower House, bring in skilled, able people.

  • rate this
    -2

    Comment number 109.

    65. philip sayers
    Well said!

    Growing up in a low income single parent family, conservative policy offered no help and seemed to see us as the route of all evil.
    Under Labour, we got support. We still struggled but we got by. Now I'm in my final year of university and my younger brother is in his first.
    We've never been able to afford luxuries, but without Labour we wouldn't be where we are today.

  • rate this
    +6

    Comment number 108.

    so all of a sudden losing the triple A rating isnt a big deal. then why did osbourne put soooo much emphasis on keeping it???? its going to cost MORE to borrow and at the rate this government is borrowing, MORE than labour said it would by the way, were going to be in bigger financial mess than before this lot were voted? in.

  • rate this
    +36

    Comment number 107.

    We could save 13Bn a year if we didn't spend on international AID


    Who the hell do we think we are? we have the 1/8 biggest economy soon to be 9th and we still spend twice as much as japan which has twice the economy. We are Borrowing money to give away and because of the rating at a much higher interest rate.

    Putting your children in debt just to look good on the international stage.

  • rate this
    +3

    Comment number 106.

    All going to plan then Osborne?
    No growth
    Increasing debt
    Energy shortages
    Credit rating collapsing
    Retail spending collapsing
    Business's folding
    Oddly enough the worst is yet to come. It will look and feel strange to live in a country with a strong financial sector surrounded by total carnage and depravation. Mass unemployment, homelessness and starvation is just around the corner.

  • rate this
    +12

    Comment number 105.

    Im sure that the UK will survive the blow Mr Cable, same cannot be said about the Liberals who in 2015 will not just be given a bloody nose, they will face the peoples anger over its complicity in making the working stiffs and poor pay for the mess.

 

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