UK George Osborne, the Chancellor of the Exchequer since May 12, 2010, following the loss of the country’s AAA credit rating, said the country needs to address its debt problem. He pledged to pursue his plan to cut the UK’s deficit and likewise further reduce tax for businesses, as reported by the Telegraph on February 23rd, Saturday.
Moody’s, the credit rating agency, which downgraded the UK one notch to Aa1 on February 22nd, Friday, pointed to “subdued” growth prospects and a “high and rising debt burden”, and expects the “period of sluggish growth to extend into the second half of the decade”, as reported on February 25th, Monday.
Credit ratings assess a government’s capability to repay its loans and instrumental to determine the interest rate to be applied on borrowings.
Osborne, facing calls from Labour to resign from his post, was forced to issue a statement saying “We will continue on the economic plan that has brought the deficit down by a quarter and the government will now re-double its efforts to overcome its debt”.
He accused Ed Balls, the shadow chancellor, of being the “architect of the mistakes that gave Britain its debt problem”.
Ed Balls, describing the Moody’s downgrade as a humiliation for the government, retaliated by saying “Osborne made maintaining the AAA rating a key benchmark for his stewardship of the economy, but failed in the first economic test he set himself”.
Osborne is expected to utilize next month’s budget to assist hard-pressed businesses and further government cuts to be implemented, report said.
The main rate of corporation tax will be further reduced from 21p, the special rate for smaller enterprises would be decreased from its present level of 20p, and Osborne aims to achieve at least L.10 billion extra savings from welfare spending in 2015 – 16, the Telegraph reported.
Meanwhile, a spokesman for Prime Minister David Cameron, despite the downgrade, has insisted that “The government’s economy plan is working that is why we believe the economy is healing”.
For all the economic gloom around the world, the UK had the excellent news that the country has exited the recession after a 1.0% growth in the economy according to GDP over the last quarter. The news is should reflect positively for the coalition but it is a difficult good news story to judge. The Olympic effect was certainly partly responsible for the boost. The Office for National Statistics predicted that ticket sales added 0.2 percentage points but also said that the effect on Olympics on hotel activity and restaurant activity and employment agencies would also have contributed. So the last few months were a particularly remarkable period.
Add to this the fact that previous quarters were negatively affected by other remarkable events – the extra public holiday because of the Diamond Jubilee and particularly bad weather. This allowed a particularly low point from which the economy could grow. Improvement in Britain’s economic fortunes was therefore to a certain extent inevitable. It’s therefore easy to deride the government’s role in the improvement as being irrelevant to what was a result of particular circumstances, which is certainly the stance Ed Balls has taken.