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
    0

    Comment number 144.

    115. CJFargo

    Try the 3 day week and power cuts of the Heath Tory government ....

    Facts are that Tory party has been in power for around 70% of the time since 1895 - so if this country is in a mess - you can blame the idiots who vote Tory.

  • rate this
    -1

    Comment number 143.

    Just how much damage does Osbourne have to do to the economy before someone (that's you Dave) sacks the most unpopular Chancellor ever?

  • rate this
    +2

    Comment number 142.

    112. arel

    "largely Symbolic"...a bit like everything that spews from liberal democrats mouths.
    ----
    There was a thread yesterday about GO diverting the a minute fraction of the paltry fines levied against the white collar crime syndicates...now that's what I call symbolic or....empty....disingenuous...hypocritical... posturing; it's a smidge like moral repugnance in lieu of legal reform

    Derrr

  • rate this
    0

    Comment number 141.

    The very first urgent reform needed to get our leaders moving in the right direction is to have it enshrined in the constitution that the taxpayer may not underwrite index-linking of remuneration or pensions.

    Inflation is threatening to go viral just as the interest rate risk hits critical.

    Having lived through the 80's I really thought we had got all this behind us. Impeachment!.

  • rate this
    +2

    Comment number 140.

    Keep flogging that dead horse George

  • rate this
    +1

    Comment number 139.

    Osborne should not have put such importance on the rating a couple of years ago - but then Ed Balls was also making a big thing out of it.

    As it happens, it is shown to be a useless measurement of anything except the ratings agency's ego.

    As for being "embarrassing" - well, the only embarrassment is that it was the only thing of any use Balls could think to say.

  • rate this
    +5

    Comment number 138.

    Losing the triple A rating isn't nearly as bad as being faced with another Labour government in the next hundred years. Letting these numpties loose during the early part of the century has condemned ( no pun intended ) the country to about fifty years of austerity , just as their spells in government during the twentieth century nearly destroyed the country.

  • rate this
    +13

    Comment number 137.

    @114 Darlo - we had growth under Labour because they borrowed hundreds of Billions and spent it in our own economy and it's now all disappeared down the cracks. Now it's pay back time. Also, the top rate of income tax rate is higher now than it was for most of Labour's reign.

  • rate this
    -2

    Comment number 136.

    Reality Bites.
    The country is in a huge mess left by the last incompetent ( some say corrupt ) 'government'
    The focus on spending our children's money to buy votes has come home to roost.
    The debt has to be reduced, and if truth be known at a more severe and faster rate than at present. This, of coarse, is not politically acceptable.
    So many years of slow growth and slow deeper cuts.
    Sorry reality

  • rate this
    +4

    Comment number 135.

    I'm sure British debt (which has never been defaulted on) is a far better investment than the toxic loans they were labelling as AAA during the financial crisis.
    Their opinion in my eyes is strictly junk status.

  • rate this
    +4

    Comment number 134.

    @73 "led a by know nothing Prime Minister and Chancellor"

    As opposed your good self, who do doubt is so experienced in an unpresedented situation like this, you have all the answers to solve the debt problem overnight. And what is your solution to the debt crisis? Yes, that's right, borrow even more.

    Armchair economists, you make me laugh. Get back to watching your Wonga adverts.

  • rate this
    +5

    Comment number 133.

    Bedroom tax because of the state of social housing, who sold off all the council houses ? Every government blames the one before (sometimes with good reason).

    If you the ones in power and thing are going belly up there is only you to blame.

    Personally I do not think any of them are worth a dam.

  • rate this
    +1

    Comment number 132.

    I'm sure they are largely symbolic when the cost of food changing makes no difference to your standard of lviing.

  • rate this
    0

    Comment number 131.

    The fundamental point is that it will cost more to borrow now, the pound will also be attacked tonight from Asia, and government bonds will be sold. What was it Bowie said, "this is not America." It is a big thing, they just want to act calm so the rich can get out first just like scrambling for lifeboats on the Titantic. This ship is unsinkable.

  • rate this
    -36

    Comment number 130.

    This development just confirms that George Osborne has not cut nearly deeply or quickly enough.

    Get to it George.

    Cut faster. Cut deeper.

  • rate this
    +4

    Comment number 129.

    Both Osborne and Cable have basically dismissed this loss of triple AAA rating as of no real consequence. If it really doesn`t matter, why on earth did they trumpet Britain retaining its triple A rating as the world having confidence in Britain and their austerity policies. If people remember, Osborne said he would be judged on this rating

  • rate this
    +19

    Comment number 128.

    The lower and Middle classes in this country and Pensioners, have taken the the brunt, of the Austerity measures to help,revive this country,
    So when are the People who created this mess going to stand up to the plate and show a backbone, All i see is a Global corporate, Banking,political elite in £100,000 cars laughing and taking the micki, with the new class system they have created!!

  • rate this
    +4

    Comment number 127.

    What is surprising is that we are not yet classed as "junk status"

  • rate this
    +5

    Comment number 126.

    Only one way out of borrowing, stop sending. We have not had any austerity yet. Public service workers have had no cuts in pay at all, merely restrictions in rises! So far policies have just pandered to borrowers, the very people causing the problem. Get rates back up, collapse house prices like in other EU places who are actually so bad they have to deal with it.

  • rate this
    0

    Comment number 125.

    How many countries qualify for AAA rating by Moody ..?

 

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