Britain’s credit rating downgrade raises questions on coalition’s economic strategy

This article was last updated on April 16, 2022

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U.K. Chancellor George Osborne has shown no interest to change the planned course to reduce the deficit after Moody’s stripped Britain of its prize AAA credit rating first time since 1970s during the issues of weak growth and rising debt.

Mr. Osborne is now more convinced that the Coalition will stick to its current economic recovery plan as the rating has been lowered by a notch to AA1 and made it all the more important not to change the course.

However, Shadow Chancellor Ed Balls has criticised the government’s strategy saying entire point of austerity drive  to retain AAA status had failed poorly and said: “The chancellor said this would be a humiliating blow and the first test of his policy was to avoid it, so clearly for him politically, it is a very, very bad moment.

“Economically, the credit rating decision itself makes no difference at all.

“What the credit rating agencies are doing though is reflecting the reality and the reality is an economy which is not growing, a deficit which is getting bigger, families in real stress and a government which is ploughing on regardless with a plan which is not working — saying ‘the medicine is not working, let’s increase the dose of the medicine’ that is completely crazy economics.”

Mr. Balls has also claimed for the economy to be in a better condition if the coalition had stuck to Labour’s spending plans in 2010. He has also admitted of increasing borrowing in case of being in charge.

Credit ratings used to assess a government’s ability to repay its loans, and also determine the interest rate governments pay against borrowing. Earlier, Britain was rated AAA, the highest possible rating, but has now dropped to a one notch lower Aa1. The current downgrading would likely to have more political than economic consequences.

The credit rating agency, Moody’s has cautioned the government that “subdued” growth prospects and a “high and rising debt burden” were weighing on the economy.

But Mr. Chancellor said the loss of the gold-plated status did not mean the government should change course.

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