UK Budget Cuts Won’t Help It Regain AAA Rating

If George Osborne wanted to win back the UK’s across-the-board AAA credit rating, this was a budget that failed. The UK is going to take a long time to win back that particular trophy from the three ratings bodies now that so much of our deficit reduction is predicated on further swingeing cuts in public-sector spending. The two credit-ratings agencies that still give Britain the top accolade could join Standard & Poor’s and force us to join France and Italy on lower rungs of the credit ladder.

George Osborne has proved a deft handler of budget cuts in the past couple of years. Reductions in disability benefits and housing benefit have either been phased out or hit groups who lack political clout. Since the 2011 riots, social unrest has been limited.

Whitehall has learned to dodge head-on fights. Osborne also learned that his first two years of severe cuts and tax rises were politically and economically illiterate.

As Jonathan Portes, head of the National Institute of Economic & Social Research thinktank, said: “Osborne tried accelerated fiscal reduction and saw that it didn’t work. In fact, it made things worse. And though he said he was still implementing it, behind the scenes he was taking his foot off the accelerator.”

According to Portes, the change of tack is why we now have growth and a feelgood factor that could prove to be sustainable for the rest of the decade.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza