Hammer blow to anti-independence campaign as UK credit rating downgraded


   The UK’s credit rating has been downgraded from AAA to AA1 by credit agency Moody’s.
The announcement follows speculation that the much coveted triple A rating was under pressure following disappointing economic news and forecasts of continued sluggishness for the UK economy.

Moody’s is the first of the major agencies to downgrade the UK, but both Standard & Poor’s and Fitch Ratings have negative outlooks.

The news will pile pressure on UK Chancellor George Osborne who has faced repeated calls to decelerate the coalition government’s austerity measures.

Speaking to Reuters, Moody’s sovereign credit analyst Sarah Carlson said:

“We see growth slowly building back up to that trend … but if you take a combination of the growth and fiscal dynamics, the result is that the debt burden of gross general debt to GDP peaks in 2016, which is substantially later than was expected a few years ago,”

The announcement is acutely embarrassing for Mr Osborne who has insisted he be judged on his ‘protection’ of the coveted rating.  The Conservative manifesto highlighted the importance of the triple A and pledged to “safeguard” it.

A defiant Mr Osborne has vowed the downgrade will “redouble our resolve”, however his prestige and credibility will now be questioned by his political opponents.

Labour Shadow Chancellor Ed Balls described the downgrade as a “Humiliating blow to the Prime Minister and chancellor” but tempered his criticism by saying that it would be a “big mistake to get carried away”

The news is also a disaster for the pro-Union campaign with leading figures repeatedly insisting that a Yes vote would jeopardise the AAA credit rating of an independent Scotland, which could only be protected by voting against independence.

Last October, the Scottish Lib Dem MP Danny Alexander claimed the cost of borrowing in an independent Scotland would shoot up soon after it broke away from the UK.

The chief secretary to the Treasury said Edinburgh would have the same debt problems as the rest of Britain but would struggle to raise money in international bond markets on the same terms.

“At the moment we are able to borrow at record low levels,” Mr Alexander told a Lords economic committee. “There is a very good question about what view the credit rating agencies take on a newly established country without any established fiscal track record and what rates would be paid on its new debt.”
According to Mr Alexander, having to pay higher interest rates would have a significant impact on the fiscal sustainability of the new country, forcing it to make some very difficult choices.  Also claimed as a weakness in achieving a Triple-A rating was Scotland’s relatively small population size.

However, almost two-thirds of the countries that currently hold triple-A status have populations of less than ten million, including Finland, Sweden, Denmark, and Norway.

The Inverness MP had previously claimed that the loss of the triple A would cost Scots £1 billion, saying in June: “Credit rating agencies have said countries with new institutions take time to establish credibility.

“We’ve said before if interest rates went up one per cent, it would cost families across the UK an extra £10billion in mortgage costs.

“It is likely the same one per cent would cost families in Scotland up to an extra £1billion.”

Scotland currently has stronger public finances than the rest of the UK, with the most recent GERS figures showing that Scotland contributes 9.6% of public revenues but receives 9.3% of public spending.

The SNP Government has argued that a low rating would be achievable given that John Swinney has balanced Scotland’s budget in every single year since 2007 while the oil & gas sector boosted the UK’s balance of trade by £40 billion. On an internationally comparable basis Scotland’s share of UK debt in 2010 would have been 64% of GDP, compared to the UK’s 76%, the EU’s 80% and the G7’s 114%.

Commenting, SNP Westminster Treasury spokesperson Stewart Hosie MP said:

“The UK government failed to learn the lessons of economic history, and has taken exactly the wrong approach to the recession.

“And now the ill-judged attacks that anti-independence politicians have made about Scotland have come back to haunt them – this is negative news for the UK economy, and also a hammer blow to the credibility of the No campaign.

“First, we heard from the UK Government how important it was to cut the deficit and pay off debt to avoid a downgrade. Now – with austerity in the UK projected to last at least six more years – they said that the AAA rating was unimportant.

“The No campaign can’t have it both ways – the scaremongering simply doesn’t stack up and has completely unravelled tonight.

“The record of our neighbours shows that small, well managed independent countries can have every expectation of enjoying the highest credit rating and more importantly favourable bond yields. Almost two-thirds of the countries that now hold triple-A status have populations of less than ten million – including Finland, Sweden, Denmark, and Norway.

“Scotland is in a stronger financial position than the rest of the UK, and that is a positive starting point from which to grow and develop the economy of an independent Scotland.”