UK to maintain Austerity Measures Despite Downgrade

U.K. Chancellor of the Exchequer George Osborne said he won’t bow to opposition calls to change economic policy after the decision by Moody’s Investors Service to strip the U.K. of its Aaa status.

Osborne said in an article for the Sun newspaper yesterday that the government should “stick to its course” to reduce Britain’s debt. The opposition Labour Party called on him to switch his emphasis from deficit reduction to growth, following what it called Moody’s “humiliating” decision.

The downgrade sparked a round of political sparring after Osborne repeatedly referred to retaining the top rating as a test for his economic policy. At the same time, investors and economists said rating changes are a poor indicator of fiscal health. U.S. and French yields are lower than they were when rating companies downgraded the nations over the past two years.
The U.K.’s high and rising debt burden means deterioration in the government’s balance sheet is unlikely to be reversed before 2016, Moody’s said. While the U.K. retains “considerable structural economic strengths,” expected slow growth of the global economy and the reduced speed of debt reduction in the country led to the decision, the company said.


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