There is little or no chance of him being sacrificed or being forced into a humiliating policy U-turn that would wreck his career. Osborne led Cameron’s bid for leadership of the Conservatives and ran the 2010 election campaign. It is like an 18th-century doctor bleeding a patient as they get sicker and sicker,” said Ed Balls, the party’s main spokesman on finance issues.īut people close to Britain’s most powerful two politicians say they are completely aligned. “The medicine is not working, so the Chancellor says increase the dose - that’s crazy economics. When the United States and France were downgraded, their outlooks remained negative.īut whether growth will return forcefully and long enough before the 2015 election to allow voters to appreciate it is now highly uncertain. Osborne can take comfort from Moody’s confidence that his austerity plan would eventually “reverse the UK’s debt trajectory”.Ī Treasury official noted Moody’s had given the UK’s credit rating a stable outlook, meaning little chance of a further downgrade in the next 12-18 months. “The coalition set out trying to please the ratings agencies, but the inflexible application of front-loaded austerity is partly to blame for the lack of growth that led Moody’s to downgrade (the UK),” said Trevor Greetham, asset allocation director at Fidelity Worldwide Investment, which managed over $240 billion in funds as of December 31. If you doubt whether that’s true, just look at what happened to all those European countries now deep in recession.”įor investors, the downgrade underscores Britain’s predicament: a debt-ridden, stagnating economy that has kept bond yields low in large part thanks to the Bank of England becoming the world’s biggest investor in UK government debt by buying it with newly printed money.Ī top official with a leading investment firm said the ratings blow was in part self-inflicted by the Conservative-led government, which had room to ease off on its belt-tightening. “If we don’t deal with it, interest rates will soar, homes will be repossessed and businesses will go bust.
Britain has a debt problem, built up over many years, and we have got to deal with it,” the 41-year-old Chancellor of the Exchequer wrote in a column for The Sun newspaper. “We’ve had a stark reminder this weekend of the single most important truth about our economy. Osborne said on Sunday the move by Moody’s showed he was right to focus on restoring Britain to fiscal health, which he said was the only way to get growth going again.
The downgrade exposes him to opponents who say his failure to deliver economic growth is driving Prime Minister David Cameron towards electoral defeat. Moody’s dealt Britain its first sovereign rating downgrade on Friday, saying the $2.5 trillion economy faced years more sluggish growth and debt would continue to rise until 2016.Įconomically the one-notch cut will have limited importance - most of Europe, Japan and the United States have already suffered the same fate, and Britain continues to borrow at historically low rates.īut politically it is toxic for Osborne, who has repeatedly vowed to protect Britain’s top credit rating since the 2010 election campaign. Britain's Chancellor of the Exchequer, George Osborne, is seen waving after delivering his keynote speech at the Conservative Party conference in Birmingham, central England in this Octofile photograph.REUTERS/Darren Staples
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