Post date: Feb 25, 2013 8:7:22 PM
British finance minister George Osborne says the Government will not flinch from its austerity drive, despite increasing pressure to change course after Moody's stripped the country of its coveted triple-A credit rating.
LONDON, ENGLAND, UNITED KINGDOM (FEBRUARY 25, 2013) (UK PARLIAMENT) - British Chancellor George Osborne refused to back down from his austerity drive on Monday (February 25), despite being dealt a major blow last week when Moody's stripped the country of its coveted triple-A credit rating.
Moody's cut Britain's rating by one notch to Aa1 from Aaa, with a stable outlook, blaming weak prospects for Britain's economy over the coming years which have thrown the government's deficit reduction strategy off course.Austerity has been the watch word for Osborne's fiscal policy since his Conservative-led coalition came to power in 2010 after an election in which he vowed to defend Britain's triple-A rating, which keeps down borrowing costs.
But weak growth - which the opposition Labour Party blames partly on too much austerity - has pushed the government's goal of largely eliminating the budget deficit by 2015 at least two years off track.
Speaking in the House of Commons, Chancellor Osborne blamed the downgrade on a mass of debt and slow economic growth.
"This rating decision is stark reminder of the debt problems built up in Britain over the last decade and a warning to anyone who thinks we can run away from dealing with those problems. And we on this side of the house will not do that," Osborne said.
The Chancellor said he accepts the decision by Moody's, and Parliament should acknowledge the reasons behind the downgrade.
"Moody's point to the combined impact of what they describe as slow growth in the global economy and the necessary domestic public and private sector de-leveraging process. In other words, the process of winding down the huge debts that built up in our society over the last decade. That is the environment we are operating in," he said.
Osborne continued to defend his economic measures, saying the situation would be worse if his austerity plan did not continue.
"We will go on delivering on the economic plan that has brought the deficit down by a quarter, helped secure a million private sector jobs and that continues to secure very low interest rates, not just for the Government," he said.
Economically the one-notch cut will have limited importance - most of Europe, Japanand the United States have already suffered the same fate, and Britain continues to borrow at historically low rates.
But politically it is toxic for Osborne, who has repeatedly vowed to protect Britain's top credit rating since the 2010 election campaign. The downgrade exposes him to opponents who say his failure to deliver economic growth is driving Prime Minister David Cameron towards electoral defeat.
The Shadow Chancellor Ed Balls warned the Chancellor his popularity could be at stake if the austerity measures continue.
"The Chancellor needs to get out of his denial and get a new plan on growth, jobs and the deficit that will actually work. Or else, the Prime Minister will need to get a new Chancellor Mr Speaker. Does he not see it is his first duty not to put his own political pride first, but the national economic interests and families and businesses in this country?" Balls questioned.
For 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.
Osborne has a chance to deliver tweaks to his economic policy in his annual budget next month.
The borrowing costs of part-nationalised British banks were unaffected on Monday (February 25) by the downgrade due to measures that had cut their dependence on the bond market and may reduce their need for bailouts in future.
Since the decision on Friday (February 22) by Moody's, the banks have shifted their focus to more traditional lending and away from the high-flying, more risky trading that got them into trouble.