I really didn’t want to write a blog post about the UK losing its AAA credit rating. Partially I didn’t want to write this post as I think the ratings agencies are part of the problem and partially because I don’t think the downgrade actually matters very much economically at all. Also, I don’t have huge amount to add to what Simon Wren-Lewis has already written.
But there is something about the tone of the Government response that means I just can’t let go unremarked.
“Tonight we have a stark reminder of the debt problems facing our country – and the clearest possible warning to anyone who thinks we can run away from dealing with those problems. Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it. We will go on delivering the plan that has cut the deficit by a quarter, and given us record low interest rates and record numbers of jobs.”
The Chancellor who argued that protecting our AAA rating was a central aim of his policy (it never should have been!) and has now turned around and argued that the downgrade proves he is right. This is absolutely staggering.
We have had basically no growth since the middle of 2010.
The fiscal targets (which were also wrong anyway) have been missed. Productivity growth has collapsed. There is no evidence of rebalancing. We are going through an unprecedented squeeze in living standards. And the one ‘bright spot’ (in as much as anyone can seriously consider 7.8% unemployment – two and half million people out of work – as a ‘bright spot’) is subject to many caveats.
The Government’s economic strategy has utterly failed by almost any measure. And yet, despite this, the Government say they will go on ‘delivering the plan’.
We are stumbling into a lost decade, serious long term damage is being done to the economy and any recovery looks like it will be based on a lower wage, lower productivity model with serious implications for living standards. As for the claim that austerity has brought us low interest rates – I’m amazed anyone bothers to argue this nonsense anymore.
Losing the AAA rating doesn’t actually matter much – the evidence from France and US is that it won’t even have much impact on gilt yields. But when you made keeping the triple A rating a central aim of your macroeconomic policy, you can’t then turn around and say losing it proves you are right.