Credit rating downgrade threat - would a downgrade be bad news?
Image: Remy de la Mauvinaire - AP
It's finally happened. Britain's much-trumpeted perfect credit rating is at risk of being tarnished.
Credit rating agency Moody's - one of the 'big three' agencies, along with Standard & Poor's (S&P) and Fitch - put the UK, France and Austria on 'negative' outlook last night.
In other words, it's considering downgrading us in the next 12 to 18 months. It's the first time that Britain's AAA- rating has been threatened in this way since the eurozone crisis broke out.
Politicians did their usual Punch and Judy act. Chancellor George Osborne claimed the warning shot from Moody's was "a reality check" for anyone who thought we could get away with avoiding cutting our debts. His opposite number, Labour's Ed Balls, claimed it showed that the government had hobbled growth by cutting too fast.
Both of them have a point. On the one hand, the ratings agencies all support 'austerity'. One reason the UK has so far maintained its AAA credit rating is because the government has acknowledged the scale of the country's debt and spelled out a plan to deal with it.
However, it's hard to cut spending without having any impact on growth. And it's the fragile economy that has Moody's worried. Indeed, "the primary driver" behind the decision is "the weaker macroeconomic environment [in the UK], which will challenge the government's efforts to place its debt burden on a downward trajectory over the coming years."
So will we actually be downgraded? It's impossible to know. But the decision is likely to rest more on what happens in the eurozone than on the domestic UK economy. The slump there is bad news for the UK, "given [its] trade and financial links with the euro area". If Europe can get its act together, perhaps we'll escape unscathed. But that's a big if.
Borrowing costs may rise
But does it matter? The standard story goes that, if your credit rating falls, it means your cost of borrowing will rise. This seems to make sense. After all, as an individual, if you have a bad credit record, then the bank will charge you more to borrow money (if it lends to you at all).
But it doesn't always work like that. The most obvious recent example is the US. The US - unquestionably still the most important economy in the world - lost its AAA rating from S&P in August last year. In political terms, that was a seismic event. Only a few years ago, it would have been unthinkable.
And yet, right before the downgrade, it cost the US just over 2% a year to borrow money over 10 years. Today it costs just under 2%. In other words, it's cheaper now for the US to borrow than it was when it had a clean AAA rating.
Will it be the same story for us? It's worth considering the reasons for the US downgrade. Like the UK, the US is heavily indebted. It has also suffered the fall out of a massive credit bubble. But a clear driver behind the downgrade in the US - which doesn't apply to the UK - was concern over the state of the country's political system.
The S&P downgrade came as US politicians were at deadlock over agreeing a deal to raise the country's debt ceiling (the legal limit on what the US can borrow). The fact that the US could come so close to voluntarily defaulting on its debt, because it couldn't agree to raise a self-imposed debt ceiling, rattled investors. So on one level at least, the S&P warning could be seen as an attempt to shake some sense into US politicians.
Same story elsewhere
However, it's not just the US. France lost its AAA rating roughly a month ago. Since then, its cost of borrowing has fallen too, from just above 3% before the downgrade, to just below it.
Japan lost its AAA rating more than 10 years ago, and has never regained it. And yet borrowing costs for that hugely indebted country remain miniscule. Canada and Australia each lost their AAA ratings, then recovered them in later years.
Why do these ratings not seem to matter? Firstly, credit ratings agencies often lag behind the markets. The most obvious case of this was during the sub-prime mortgage crisis in the US. It took ratings agencies ages to reclassify clearly dodgy mortgage products, by which time markets had already sold them off to the point where they were clearly not AAA products. So the fact is, by the time a downgrade arrives, everyone is already expecting it and has 'priced it in'.
Secondly, what you have to remember about financial markets is that money has to flow somewhere. So it's not about how unattractive you look. It's about how unattractive you are compared to the rest of the world.
To put it into perspective, Britain is one of only a handful of countries left with a AAA rating. If life was rosy everywhere else, then the threat of a downgrade from AAA would be a lot more serious. But given the competition (particularly the current aversion to anything denominated in euros), we don't look too awful by comparison.
Thirdly, you have to remember that AAA is the top rating. It's like being knocked down from scoring 10 out of 10 in a test, to 9.5 out of 10. It's hardly catastrophic. Ratings start to matter more when you are teetering on the edge of respectability and confidence is fragile, as we've seen with the likes of Italy, Spain and Greece.
So we're all clear then?
Don't get too excited. The fact is that the UK's finances are in a mess. We are one of the most over-indebted nations in the world (if you take all our debts, private and public, into account). One of the main things keeping our borrowing costs down is the fact that the Bank of England keeps printing money to buy up our government debt (gilts).
Indeed, ironically enough, the biggest threat to the UK could be if other parts of the world - the eurozone in particular - start to look less frightening for investors, and money stops flowing to our shores looking for a 'safe haven'.
So there's plenty for us to worry about. But a ticking off from a credit ratings agency is not one of them.
The Greeks are suffering because off corrupt politicians and the EEC have bailed them out.
The next Country is the UK.
We only talk to people who agree with the Tories, this is the new democracy according to Chairman Cameron.
If you corrupt the Police and politicians and are an expert at lying then you are the type of person who can run a news paper in this country.
If you want to become a successful business person in Tory Brittan get the Murdoch book on success.
BLAME THE M.P.S FOR GIVING BILLIONS OF OUR MONEY TO BALE OUT THE EURO
THEY LIE THROUGH THERE TEETH . AND DO EVERY THING THAT THERE MASTERS IN THE E.U. TELL THEM.. AND I CAN HEAR THE PRIME MINISTER AND THAT IGNORANT
CLEGG NOW SAY , WE MUST PROP UP THE EURO NO MATTER WHAT IT COST US THE PEOPLE WONT KNOW ,WE MUST STAY IN THE GANG CANT GO AGAINST THEM ..DO NOT WORRY ABOUT THE PEOPLE IN ENGLAND AS LONG AS THE EUROPE AND THE EURO SURVIVES .. NEXT ELECTION LETS SHOW THESE GREEDY M.P.S WE HAVE HAD ENOUGH OR EUROPE AND WE WANT OUT NOW VOTE FOR U KIP TO GET US OUT AND KEEP OUR MONEY TO BE SPENT ON THIS COUNTRY .AND GET OUR INDUSTRY BACK THIS IS WHAT WE NEED NOW ,AND MAKE BRITAIN GREAT AGAIN ......
All the political elite are to blame, all of the lazy, money grabbing people of the country who believed in the 'buy now pay NEVER' culture are to blame. The old adage that there is nothing for free is, and has always been, true! Maggie started the ball rolling 'loads of money!' oh how we laughed.......Major tried to balance the books.....BORING we cried!!!.........Blair 'Things can only get better!!!' how exciting we thought, money flowing like water, where was it coming from??? WHO CARED as long as WE got some!!! nurses, police, GP's, MP's, Lawyers, BANKERS the list is endless, these are the same creatures who are now winging about 'fairness' as the cupboard is now empty, the first rats to show themselves after a decade of being fed the line 'it is only fair that you get paid this', 'money equals GOOD'.
This current lot, are they really trying to change the country back to a balanced economy? where people have play their part? where there is some moral fibre? I am not sure, but the country aint behind them are they? NO, we want the 'money for nothing' again, we dont like being told what we have to do, this aint 'uman rights' as we have been lead to believe?!?!? the money is our RIGHT!!
Reality check, travel around the world, our young are unemployed because employers get better ROI's using hard working, educated foreign students who dont think that they should get a bonus for turning up on time (and the bankers, MP's, Lords, Civil servants teach them this cause they ALSO think they should get this bonus!), where is the moral guidance??
No one knows who to trust in England anymore, you have lost your morals. And i don,t think you even give dam. One day your going to regreat that.
I turn my back on all MP,s they are not better than the mafia, corrupt in every word ever thought up to communicate as human beings, only to have those words corrupted and used against you, now that is wrong.
bet you did,nt think the communication system as humans we use, is being used as a lie for system of corruption. Sod em, ill live poor and with out your riches, but they have nothing from me, ive never had it so i wont miss it, but at least i have some cigarettes and a pint, this generation is full of lies this day and age, and it going to bring you down in the end. To much worng doing in the world, reminds of the old days of propaganda.
Yeh and everyone lauged at me and said i was stupid and dumb. Yet i saw the devil with the smile when Tony Blair came to power, i said then and i say it now, he would be bring no good to England. I was right. Just like they are manipulating you now on your health bull****, think about it, they are telling how to eat, drink, work, work longer hours than europe. Yet they say over and over again they never saw the recession coming, ****.
i FOLLOW NO MP, I FOLLOW NO LEADER, YOU ARE ALL VERY BAD PEOPLE, IT IS BECAUSE YOU IN POWER THAT THIS HAS HAPPENED, YOU LET IT HAPPEN. INSTEAD YOU LET THE DEBT MOUNT UP UNTILL THE WELL WENT DRY, AND YOU KNOW IT. JUST LIKE YOU TWISTED THE EU TREATIES, I WAS VERY WISE TO SEE CREDIT WOULD RUIN THIS COUNTRY I WAS RIGHT, THEY CALL IT ECONOMIC WAR. GET YOU SUPER FIT TO DROP.
You see what you so called modern day people don,t get, and you don,t get it because you refuse to hear and see it. Because we old farts and old fashioned people don,t mean anything to you so called hip cool people of today, but i was and old fart that understood very clearly how goverments worked, they bend and twist you moral and minds and talk all nice to you and with glowing faces and looking all innocent on tv, yet i know you modern day people, have never seen what i have already seen, yet you refursed to hear us, you refused to take the wise words of an old fart, now look at you. Your greed has brought you to your knees in a matter of years, not 100 years, a mear 10 years. Its all fallen apart, im so glad we did,nt have people like you of today, back in world war II, you would,nt be able to handle it. living in mud, living in fear, dare not go to sleep for days on end, sleeping rought, sleeping with body parts all around you, yeh ill put the fear of god into you, you have no dam respect for life, not really. All you have today is silly false white teeth and spray on tans with this silly celeb nonsense you earn lots of money for not doing a job, but for talking **** and you don,t care one bit, not one bit. You have become Arrogant, most of you can,t even hold a door open for some one, no guts. Majority can,t even handle your nerves, because i will tell you some thing, your lots nerves these days fail you, you can,t even stand up for your selves afraid to speak out, this country has walked all over you, and you can,t even see it, not even now, your courage fails you.
MP,s are the real people, that bring misery, they are the ones who pull the strings after all, but i was still able to see, that banks were up to know good and the price of life just for you to live would be a price to high to pay, and now here it is. Too many wrong doers and bad people in the world now.
YOU LEARNT NOTHING FROM WORLD WAR II, SO SAD YOUR HISTOYR TAUGHT YOU NOTHING, YOU DONT UNDERSTAND PROPAGANDA NOT REALLY, THAT IS WHY TONY BLIAR WALKED ALL OVER YOU, YOU DID,NT GET A VOTE ON ANYTING REALLY DID YOU, EACH TIME THEY STOPPED YOU FROM VOTING AND PRESSED ON AHEAD ANYWAY, WEATHER YOU LIKED IT OR NOT, THEY WERE GOING TO DO IT.
I think in the end thease last few years, will writen in histoy books. As when human beings who went mad because of them not being able to control them selves, when it came to greed.
we no longer encourage saving,
and penalise the elderly for working and saving , when needing care,
prevent young disabled people from having their own businesses because of care capital rules,
going bankrupt is too easy,
we seem to reward those that cant be bothered in the words of catherine tate am i bothered
the country is to lose with this attidude, and even blair brown cameron have not got a grip
i employ 3 foreign cares and they know how to work the 2 english well god help us
dont get me onto football and the fame game lets get back pride manufacturing and morality and a peoples party
old politics have killed our country
If our rating goes down then we will pay more to borrow money.
Read the article. We won't.
The US and France had their ratings downgraded but their costs of borrowing fell. Reason being because the credit rating agencies are years behind the markets so when the downgrade comes everybody expects it any way.
You all blame gordon brown who was the man that inherited this recession from tony blair, no - one can stop a recession easily when its hear. You need to understand also that things have to be cut if they aren't and we have money in our pockets then we're nowhere near going to recover because we'll have money but the gov wont and they need all this money to pay it off quicker for us to recover which is still gonna take a lot of time.
It is not just Tony Blair obviouslly Brown contributed to this but its hard for a PM and you'll never understand since your not and probably wont (unless your a hardcore politics fan an planning a revolution lol) become one.
Also right now we need David Cameron and should be thanking him, ye he's cutting everything an all that but in the long run we'll benefit if everything stays the same and we have money and theres inflation then that money is useless anyway...
Always look on the bright side of life dodo do do do
blame the bank thats why previous government overspent and it took alot of money for the last government to help the poor get back into jobs with reasonable pay and not living day by day unable to feed and cloth them selves but to have some money left over and live a semi comfy life.
What they did get wrong was allowing these energy companies to over charge the british public and to give the railway that maggie sold off 5 billion a year and allow them to make big profits and pay big bonuses at the tax payers expense and the biggest mess was allowing the conservatives and liberals who were bankers to screw up and collapse the banking system and get bailed out via tax payers and still give them selves a big 6 million bonus for loosing billions.
Still the conservatives allow those errors to continue.
Gordon Brown played a central role in the collapse of our banks he appointed Cosby of HBOS as a board memeber of the FSA who had previously fined HBOS many time for malpractise. Not surprisingly once the fox was in charge of the chickenhouse all real attempts at enforcing regulation stopped. Mr Brown took 100 billion from our pension funds and left us with Public Private Financing Initiative debt that means we pay three times the price for everything.
Tony Blair and his wars have cost us an incalculable amount in money and good will that has been hidden from us. in addition all of our armoured vehicles, tanks, aircraft and helicopters are worn out an cannot be replaced. We no longer have the means to even defend ourselves
