UK Politics

UK's loss of AAA credit rating largely symbolic, says Vince Cable

  • 24 February 2013
  • From the section UK Politics
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Media captionBusiness Secretary Vince Cable says the downgrading of the UK credit rating is 'largely symbolic' and without too much effect on the 'real economy'.

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."

"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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