YEREVAN, February 25. /ARKA/. U.K. Business Secretary Vince Cable, a senior member of the junior coalition partner the Liberal Democrats, Sunday made it clear his party would not support deeper austerity measures to regain a triple-A credit rating from Moody’s.
In the wake of Friday’s historic downgrade of the U.K.’s top-notch credit rating by Moody’s, U.K. Chancellor of the Exchequer George Osborne is faced with the dilemma of whether to introduce further cuts to public spending in his March 20 budget statement, to keep the deficit reduction plan on track, or whether to slow the pace of austerity in an effort to foster an economic recovery.
Since the rating downgrade, which saw Moody’s lower the U.K.’s domestic and foreign-currency bond rating one notch to Aa1 and change its outlook to stable, Mr. Osborne has indicated he intends to stick to his current plan to eliminate the country’s structural budget deficit.
“Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it,” the chancellor said Friday night after the downgrade. However, he is facing calls from within his own Conservative Party and from some business lobby groups to make deeper cuts to public spending in order to fund a tax cut.
Speaking on the BBC’s Andrew Marr show, Mr. Cable said it was extremely difficult to balance the need to get the budget deficit under control with the need to get the economy growing. He appeared to rule out the possibility of his party supporting further spending cuts in the coming budget.
“I think to embark on a slash and burn policy in response to this [rating downgrade] would be utterly foolish and counterproductive,” he said.
Mr. Cable said the loss of the triple-A rating from Moody’s was largely symbolic, pointing out that similar cuts to the U.S. and France had done little long-term damage to their economic prospects.
“The ratings agencies actually have a pretty bad record, they’re a bit like tipsters,” he said. “They are part of the background noise that we have to take into account.”
Economists say the rating downgrade is unlikely to affect the U.K.’s borrowing costs as the market had largely factored in the prospect of a downgrade. However, they say it could put further pressure on sterling, which has been one of the worse-performing currencies this year.
The U.K. is still rated triple-A by Standard & Poor’s Ratings Services and Fitch Ratings, although both firms have the country on negative outlook. –0–
