4. The UK Losing Its AAA Credit Rating
Just before the General Election of February 2010, George Osborne promised to implement a new financial strategy which would bring Britain a prosperous future. Helpfully, for us, he set out the benchmarks for his economic policy against which he expected to be measured and held accountable. He said that safeguarding the rating was his first benchmark and a measure of success. He also warned that a credit rating downgrade would be humiliating and that it was absolutely essential that Britain not have one: Our first benchmark is to cut the deficit more quickly to safeguard Britains credit rating. I know that we are taking a political gamble to set this up as a measure of success. Protecting the credit rating will not be easy The pace of fiscal consolidation will be co-ordinated with monetary policy. And we will protect Britains credit rating and international reputation. On the evening of Friday 22 February Britain was stripped of its AAA-rating status for the first time ever. Moody's was the first of the major agencies to kick the UK out of the gilt-edged group of AAA countries. They took the decision to cut the rating to AA1 based on "subdued growth" and a "high and rising debt burden". In addition to being something of a badge of honour in proving economic credentials internationally, the rating is important because it can determine the country's cost of borrowing. As a result of this downgrade the pound is under substantially more pressure on foreign exchange markets. Indeed in the days following the announcement the pound. The decision by Moody's suggested that the Chancellor's strategy had floundered and that he himself was running out of credibility. On April 19th a second agency, Fitch Ratings, delivered another blow to Chancellor George Osborne, when it also marked down Britain's triple A status due to very weak economic growth performance, a shrinking private and public sector and the impact from the perpetualg Eurozone debt crisis. Measured by criteria which he himself outlined, George Osborne had failed. For a Chancellor whose whole economic strategy was built on the AAA status being maintained this was a massive political embarrassment.