Government Plays Down Importance Of AAA Rating

By Olesya Dmitracova

LONDON (Reuters) – Britain’s top finance officials have played down the importance of the country’s top-notch credit rating, which could be pressured as the government struggles to achieve its deficit cutting aims with the country stuck in recession.

Chancellor George Osborne and his deputy Danny Alexander stressed the need to support economic growth alongside reducing a hefty fiscal deficit, but gave no suggestion that the government would relax its programme of cuts in the face of pressure to boost a stagnating economy.

“The credit rating is not the be-all and end-all,” Alexander, a member of the Lib Dems – the junior partner in the ruling coalition – told BBC radio in comments broadcast on Monday.

Asked about Alexander’s statement, Osborne said in televised comments: “Danny Alexander and I completely agree. The credit rating is important but it’s also important to have the right economic policies. That’s what really matters and the credit rating reflects that.”

Analysts saw Alexander’s remarks as an attempt by the government to soften the impact of a possible downgrade as a recession is hitting tax receipts, making it harder for the government to reach its deficit targets.

Alexander advocated “the right policy mix for the country to get people back into work, to support economic growth to deal with the huge problems in our public finances”.

The credit agencies’ ratings reflected “the credibility of that mix”, he said.

Osborne, a member of the Conservative party which dominates the coalition, has pledged to erase Britain’s budget deficit within five years with a programme of spending cuts and tax rises. He has resisted pressure to ease austerity measures as the recession has deepened.

Last week he said the coalition would not ease back on getting to grips with the public debt, after rating agency Standard & Poor’s affirmed the country’s top debt rating.

Samuel Tombs, economist at Capital Economics, said Alexander acknowledged the possibility that Britain could lose its top-notch rating and his comments were aimed at moderating fears of the impact such a downgrade would have.

Simon Lee, Senior Politics Lecturer at the University of Hull, agreed. “Modern politics is about expectation management, putting it into people’s minds before it all happens,” he said.

The other main rating agencies, Moody’s Investors Service and Fitch Ratings, also have Britain at AAA but with a negative outlook, warning the country could be downgraded in the next couple of years if the government relaxes its fiscal stance.

Osborne has already said that Britain’s budget deficit would be wiped out by 2017 — two years later than originally forecast. And Cameron has indicated that spending cuts could last until 2020.