Britain’s economic downgrade


Le Royaume uni a perdu son triple A dans la nuit du vendredi au samedi 23 février 2013. L’agence Moody’s, une des trois agence de notation mondiales, a dégradé la note du pays, justifiant ce geste par  «la faiblesse continue des perspectives de croissance du Royaume-Uni à moyen terme», prévoyant de surcroit une période atone à long terme voire une 3ème période de récession depuis la crise de 2008. Cette dégradation va avoir des conséquences économiques pour le pays, puisque les taux d’emprunt de l’Etat risquent d’augmenter, mais elle a d’ores et déjà des conséquences politiques


The key point of Cameron’s agenda is his austerity policy, whose purpose is reduce Britain’s public debt. British public debt amounts to around 80% of GDP. Austerity plans were led by Chancellor Osborne, and they had some positive consequences, because Osborne succeeded in lowering public debt a bit. However, they also curbed growth by cutting many public programmes. And one of the results is that growth is still as low as 1.1%. Austerity policies are inherently flawed because austerity plans prevent growth and sluggish growth prevents public debt reduction. Such economic prospects were put forward to account for Moody’s decision to downgrade Britain’s AAA rating to AA1.

Of course, this downgrade will have economic consequences. The USA and France were also downgraded by rating agencies, and their interest rates on financial markets increased, but the increase was small. However, every Briton could be affected by the decision, because by choosing to downgrade Great Britain, Moody’s will also influence the interest rate of small owners’ repayment (real estate loans for example), which are about to increase.

A financial risk exists too: the British currency is now vulnerable. In order to generate growth, Cameron’s government decided to carry out a reflationary monetary policy. So Bank of England governor Sir Mervyn King wanted to print more electronic money in an effort to bolster growth. The Sterling is expected to come under pressure because of Asian markets. Moody’s also cut the central bank’s rating last night.

But the main consequences will be political. Indeed, Osborne justified his austerity policy by the protection of the AAA rating. It seems to him that the policy that was led was the rught one, because ratings agencies kept the rate at its highest level. This downgrade is a hard blow to him and his policy. Strangely enough he uses this downgrade to reaffirm the necessity of his policy, without ever questioning it. He put forward the good employment figures that were at 29.7m at the end of last year – the highest number of people in work since records began in 1971.  Osborne said: “We continue to command very low interest rates and also this country is continuing, despite all the difficulties and despite the fact that growth has been much slower than was originally forecast … to create jobs – a million jobs since we came into office.”

To Shadow Chancellor Ed Balls, the downgrade is worrying. He also thinks that debt reduction is a priority but that it can’t be durably profitable for the country without growth. However he regrets the effect of such a downgrade: “Tonight’s verdict does not change the fact that the credit rating agencies have made major misjudgments over recent years, not least in giving top ratings to US sub-prime mortgages before the global financial crash.”

The opposition now has a new argument to criticize the government’s fiscal policy, which they hope will help them win the next general election.

Cyrielle VAUCOIS



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