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
    +21

    Comment number 1021.

    Our economy is floundering now. What is it going to be like in 2 years when we hit the energy crisis and the price of energy goes up much higher? Cost of goods & food will also go up.

    People will have even less to spend on the wider economy than they do now.

    I fear dark days are approaching - things are yet to get much worse.

  • rate this
    +4

    Comment number 1014.

    Where does everyone think the money comes from to pay off our debts? It comes from those that pay taxes, either direct or indirect...it is simple either we collect more tax or reduce spending. The problem is that nobody wants either.

    Calls for nationalising this or that, not building HS2 is naive. It's more businesses that make things people want that we need.

  • rate this
    +67

    Comment number 836.

    The biggest mistake of successive UK governments is to sell off of our industries and utilities. If you what to make money you sell what you produce, you do not sell the means of production. Without a industrial base we are just consumers growing ever poorer as our savings capital is spent. The illusion of wealth created by the dash for inward investment was a fire sale, so triple B here we come.

  • rate this
    +21

    Comment number 689.

    The loss of AAA rating indicates that the ability of the UK to repay debt is seen as less secure than before. The government's policies are failing because they are stifling growth with big taxation yet refuse to see that big spending by government on imported items has to come down. This means reducing capital defence expenditure on anything not made in the UK.

  • rate this
    +53

    Comment number 436.

    These credit agencies didn't see the credit crunch coming and gave the US banking system the thumbs up shortly before it all went belly up. The US and France lost their AAA ratings and their cost of Government borrowing went down not up. It's all symbolic and embarrassing for Osbourne but ultimately meaningless.

 

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