The Chancellor of the Exchequer in UK, George Osborne stated that he will not give in to the opposition calls for changing the economic policy. Incidentally, Moody’s Investors Service recently announced of stripping UK of the AAA status.
The UK Government is currently trying to reduce the debt, however, Labour Party; the main opposition has demanded that they should focus more on growth now, rather than debt reduction. Ken Clarke, the Conservative Chancellor and Vince Cable, the Business Secretary have supported Osborne’s views and have tried to downplay the significance of Moody’s latest rating.
Incidentally, earlier, Osborne announced that Moody’s rating is a test for his current economic policy. Economists believe that rating reduction is a poor indicator of a country’s fiscal health. Incidentally, the gilt yields of France and US are lower than what they were, 2 years ago, when they were downgraded by Moody’s.
Osborne commented that the debt problem of UK has built up over the last few years and it is not possible for him to ignore the same. He even announced that the rating decision doubles his resolve to deal with the debt problem. The high and rising debt burden of UK denotes that the deterioration in the balance sheet of UK is not going to reverse until 2016, as commented by Moody’s while downgrading UK. It also stated that UK has been able to retain the considerable structural economic growth; however, the growth rate will be slow over the next few years.
Shahid Ikram, who heads the Sovereigns Department of Aviva Investors and is also the Chief Investment Officer, stated that the downgrade is all in the price and Moody’s decision must not have shocked the market. He added that as the downgrade has not affected the US and France significantly, impact on British gilts for the downgrade will be limited as well.
Stuart Thompson, an analyst of Ignis Asset Management sees no reason for Moody’s decision becoming a big talking point in UK markets. Stuarts stated that whatever Moody’s declared while announcing the rating cut is already a known news and hence behind the curve. He added that UK economy has improved quite a bit in last few months and US can show good economic growth compared to Europe, even after being downgraded in last year, there is no reason for UK to follow that.