Osborne's policies threaten Britain's AAA rating

Moody's warning proves that Britain isn't out of the danger zone.

So now Moody's has got in on the game. Today, it reiterated its warning that the UK could shortly lose its AAA credit rating because Osborne's policies are failing. The pound fell by more than half a cent on the news. Specifically, this was because growth is failing and this hopeless coalition government looks unlikely to hit its deficit reduction targets. As a result of the lack of growth in the economy, this week, Slasher has admitted that he is going to have to allow the automatic stabilisers to kick in to prevent the economy dropping off a cliff. Oh, dear. And all of that in the week when Cameron announced more U-turns on the NHS and prison reform. Three U-turns in a week is rather a lot.

So much for Osborne's claim, a couple of weeks ago, in his speech to the Institute of Directors on 11 May that: "Our credit rating has come off negative outlook ­ when other countries are facing downgrades. We have brought much-needed stability at home and attracted near universal confidence abroad." Looks like that confidence is slipping as each hour passes. Yesterday, the chairman of the Federal Reserve, Ben Bernanke, fired a shot across Slasher's bow when he warned that cutting fiscally too quickly was "self-defeating" and that uneven recoveries are likely to require further stimulus. "Establishing a credible plan for reducing future deficits now would not only enhance economic performance in the long run but could also yield near-term benefits by leading to lower long-term interest rates. On the other hand, "A sharp fiscal consolidation focused on the very near term could be self-defeating." That is how it is looking in the UK. It is interesting that the US has restored the GDP that was lost in the recession and is growing, albeit slowly, while the UK is stagnating and likely needs more stimulus than the US does.

Plus, plans for the new Financial Services Committee also look to be in disarray as the Treasury select committee expressed concern this week about the lack of independence of its members and has called for more external members. Alistair Clark, who worked for years at Mervyn King's side, hardly seems independent. Giving all that power to the Bank means that Mervyn is likely to dominate just as he did with the MPC -- and look what a mess groupthink got us into in 2008. The ex-MPC members Sushil Wadhwani and Willem Buiter also expressed their opposition on giving the Bank of England more powers. Osborne's plans for financial stability are in a mess, along with lots of other policies this government has failed to think through. Plus, banks are still not lending, as Vince Cable made clear today. Maybe one day this government will do something about it!

There was also some more worrying economic news on jobs and retail sales. The latest KPMG/REC report on jobs showed weaker increases in both permanent placements and temp billings. The growth of overall job vacancies eased to a five-month low and there was the lowest rise in permanent staff salaries for three months. Commenting on the results, Bernard Brown, partner and head of business services at KPMG, said: "The latest figures are worrying -­ because they reveal a marked slowdown of the UK jobs market. We'll need to see whether this is a trend or a blip. Employers across all sectors are becoming more cautious about hiring new staff. With businesses and consumers now being hit by higher taxes and fuel costs, public-spending cuts and a continuing squeeze on real incomes -­ this is perhaps no surprise." Too right.

May's BRC retail sales monitor suggests that the underlying strength of the consumer recovery is exceptionally weak. The annual growth rate of like-for-like sales values fell to minus 2.1 per cent, down from the 5.2 per cent growth seen in April. April's figures were boosted by the later timing of Easter this year and the royal wedding, so a sharp drop was always on the cards. But Capital Economics has pointed out that May's survey was particularly weak and, excluding past months, which were adversely affected by the timing of Easter, "This was the weakest reading since December 2008." Before too long, Osborne may have to take the IMF's advice and cut taxes. How about now?

I couldn't let David Smith's ridiculous and out-of-touch column in the Sunday Times over the weekend calling for a rise in the exchange rate to pass unnoticed. He claimed: "The main reason we need a stronger pound is to help control inflation and limit the extent that interest rates will need to rise to do so." Honestly, I don't know what planet this guy is on, as that is absolutely the last thing the British economy needs, given that we have had zero growth over the past six months and austerity has yet to hit. Second, we don't have an inflation problem: we potentially have a problem of deflation, as the MPC has made clear once the transitory effects of VAT, commodity and oil prices and the fall in the exchange rate drop out. Indeed, it would be even clearer that we were faced with the possibility of deflation if falling house prices were included in the CPI. Any attempt to raise rates now would decimate growth further. Smith has been on the wrong side of almost every economic issue throughout this recession and, of course, failed to spot it in the first place.

The UK demonstrably does not need a stronger pound right now. A depreciated currency has provided a welcome stimulus to the economy and any appreciation now would be bad for employment and growth. I guess Smith hasn't noticed that the pound has appreciated strongly over the past 12 months (from $1.45 to approx $1.65) since the Fed did more competitive QE and the MPC, wrongly, did not respond by doing more QE, too. Smith chortled that the Institute of Economic Affairs' shadow MPC shamelessly promotes and supports him. Personally I couldn't care less that six third-rate, right-wing hacks agreed with Smith and voted for a rate rise. They have zero credibility and should be ignored: as the MPC ­- minus "Death" Sentance -- fortunately will do this week. As the IMF made quite clear, a rate hike now would put Slasher in trouble. On second thoughts, maybe they should raise rates . . .

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

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Donald Trump's healthcare failure could be to his advantage

The appearance of weakness is less electorally damaging than actually removing healthcare from millions of people.

Good morning. Is it all over for Donald Trump? His approval ratings have cratered to below 40%. Now his attempt to dismantle Barack Obama's healthcare reforms have hit serious resistance from within the Republican Party, adding to the failures and retreats of his early days in office.

The problem for the GOP is that their opposition to Obamacare had more to do with the word "Obama" than the word "care". The previous President opted for a right-wing solution to the problem of the uninsured in a doomed attempt to secure bipartisan support for his healthcare reform. The politician with the biggest impact on the structures of the Affordable Care Act is Mitt Romney.

But now that the Republicans control all three branches of government they are left in a situation where they have no alternative to Obamacare that wouldn't either a) shred conservative orthodoxies on healthcare or b) create numerous and angry losers in their constituencies. The difficulties for Trump's proposal is that it does a bit of both.

Now the man who ran on his ability to cut a deal has been forced to make a take it or leave plea to Republicans in the House of Representatives: vote for this plan or say goodbye to any chance of repealing Obamacare.

But that's probably good news for Trump. The appearance of weakness and failure is less electorally damaging than actually succeeding in removing healthcare from millions of people, including people who voted for Trump.

Trump won his first term because his own negatives as a candidate weren't quite enough to drag him down on a night when he underperformed Republican candidates across the country. The historical trends all make it hard for a first-term incumbent to lose. So far, Trump's administration is largely being frustrated by the Republican establishment though he is succeeding in leveraging the Presidency for the benefit of his business empire.

But it may be that in the failure to get anything done he succeeds in once again riding Republican coattails to victory in 2020.

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.