Going to the country
George Osborne, the shadow chancellor, says that Britain's negative report card from a major ratings agency is another reason to call a general election.
No surprise there - an opposition party, ahead in the polls, tends to find a lot of good reasons to go to the country. But from the standpoint of the financial markets, there will be a large question mark hanging over the public finances until the result of that election is known.
As Robert Peston has pointed out, we shouldn't get carried away with the news that Standard & Poor's has revised down its outlook for the UK. We are not about to lose our triple-A rating yet. And none of the other big ratings agencies has changed its view.
Also, agency ratings are just one of the factors that investors use in pricing UK debt, and they are re-pricing it all the time. In fact, the government's borrowing costs have already risen in recent months, without any help from Standard & Poor's.
Still, this is the first time since the UK acquired its AAA rating in 1978 that the agency has given it a negative outlook. That's not nothing.
There are two reasons why Standard & Poor's has put the British government on notice. One is that it expects the UK's net debt burden to rise to 100% of GDP by 2013. If sustained, that would be incompatible with a AAA rating and is considerably worse than when the agency last affirmed the UK's rating in January.
The second is that the agency can't judge whether the UK is going to take action to prevent that outcome, until it sees the result of the next general election.
Here are the key quotes from the Standard & Poor's report:
"We note that there is support across the political spectrum for additional fiscal tightening. However, the parties' intentions will likely remain unclear until the next administration is formed after the general election, due by mid-2010."
"The rating could be lowered if we conclude that, following the election, the next government's fiscal consolidation plans are unlikely to put the UK debt burden on a secure downward trajectory over the medium term. Conversely, the outlook could be revised back to stable if comprehensive measures are implemented to place the public finances on a sustainable footing, or if fiscal outturns are more benign than we currently anticipate."
You might say that general elections shouldn't be called for the convenience of the financial markets. And you might be right.
You might also say that international investors are grown-ups. They know that countries hold elections. And neither Standard & Poor's, nor the other ratings agencies, nor the IMF (which produced its report card on the UK yesterday) thinks that the UK will fall off a cliff if further fiscal tightening isn't announced until next year.
This is all about long-term plans - and showing you are serious about getting debt back down again over a reasonable time-frame. Alistair Darling announced a significant tightening in the Budget. But the IFS, the IMF and many others believe that we will end up needing more.
It's not clear that any of the major parties are ready to spell out to the British public exactly what that would entail - still less implement it. But with the government needing to borrow more than 12% of GDP from the markets this year and next, the road to the next general election could be even bumpier than we thought.