UK downgrade pressures reluctant Osborne to change course

Sat Feb 23, 2013 7:08pm EST
 
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By Guy Faulconbridge

LONDON (Reuters) - Britain's finance minister insisted on Saturday he would not change course after the loss of the country's 'AAA' credit rating but George Osborne is facing pressure to do just that as his bet on austerity falters ahead of the 2015 election.

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.

Economically 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.

But politically it is toxic for Osborne who has repeatedly vowed to protect the 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.

Osborne said on Saturday the move by Moody's showed he was right to focus on restoring Britain to fiscal health, arguing that only by doing that will the conditions for growth be restored.

"I am absolutely determined to make sure we deal with our problems, to make sure that Britain stays the course, to make sure that it doesn't take from this credit rating the wrong message which is we should go and borrow a lot more," the 41-year-old Chancellor of the Exchequer said.

"I'm absolutely clear we're not going to do that."

For investors, the downgrade underscores Britain's predicament: a debt-ridden, stagnating economy which 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.   Continued...

 
Pedestrians walk past the Bank of England in the City of London February 23, 2013. REUTERS/Neil Hall