Fitch agency downgrades UK credit rating from AAA to AA+

More trouble for "downgraded Chancellor" George Osborne.

The Fitch agency has joined Moody's in downgrading Britain's credit rating, citing a "weaker economic and fiscal outlook".

The country has moved from AAA, the top rating, to AA+. However, Fitch says that outlook is now "stable" meaning that Britain is unlikely to be downgraded further. (The third agency, Standard & Poor's, still gives Britain a triple-A score.)

As Staggers editor George Eaton noted when Moody's downgraded Britain, George Osborne repeatedly staked his economic credibility of the views of the ratings agencies when the coalition came to power. He wrote:

For Osborne, who chose to make our credit rating the ultimate metric of economic stability, it is a humiliating moment. Not my words, but his. During one of his rhetorical assaults against Labour in August 2009, he warned: "Britain faces the humiliating possibility of losing its international credit rating". Rarely before or after becoming Chancellor, did Osborne miss an opportunity to remind us just how important he thought the retention of our AAA rating was.

The Treasury responded to the news by reaffirming its commitment to austerity in the name of deficit reduction. A spokesperson told the BBC:

"This is a stark reminder that the UK cannot simply run away from its problems, or refuse to deal with a legacy of debt built up over a decade.

"Fitch themselves say the government's 'continued policy commitment to reducing the underlying budget deficit' is one of the main reasons UK debt now has a 'stable' outlook.

"Though it is taking time, we are fixing this country's economic problems. The deficit is down by a third (since 2010), a million and a quarter new private sector jobs have been created and the credibility we have earned means households and businesses are benefitting from near record low interest rates."

However, as the New Statesman's economics editor - and former member of the Bank of England's Monetary Policy committee - David Blanchflower wrote in March:

Our downgraded Chancellor lost the UK’s triple-A credit rating because he has delivered neither on growth nor on the deficit. In June 2010, the Office for Budget Responsibility (OBR) forecast that growth in the UK would be 2.3 per cent in 2011 and 2.8 per cent in 2012. What we got was 0.9 per cent and -0.1 per cent.

The government hasn’t dealt with the country’s debts – far from it. The coalition has boasted so many times that it has reduced the deficit by a quarter but the reality is that this was done primarily by slashing capital spending, which has had a devastating impact on the construction industry. And the deficit is now rising, as was confirmed in the 20 March Budget.

George Osborne stares at a wheel. Photo: Getty

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.

Photo: Getty
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Forget planning for no deal. The government isn't really planning for Brexit at all

The British government is simply not in a position to handle life after the EU.

No deal is better than a bad deal? That phrase has essentially vanished from Theresa May’s lips since the loss of her parliamentary majority in June, but it lives on in the minds of her boosters in the commentariat and the most committed parts of the Brexit press. In fact, they have a new meme: criticising the civil service and ministers who backed a Remain vote for “not preparing” for a no deal Brexit.

Leaving without a deal would mean, among other things, dropping out of the Open Skies agreement which allows British aeroplanes to fly to the United States and European Union. It would lead very quickly to food shortages and also mean that radioactive isotopes, used among other things for cancer treatment, wouldn’t be able to cross into the UK anymore. “Planning for no deal” actually means “making a deal”.  (Where the Brexit elite may have a point is that the consequences of no deal are sufficiently disruptive on both sides that the British government shouldn’t  worry too much about the two-year time frame set out in Article 50, as both sides have too big an incentive to always agree to extra time. I don’t think this is likely for political reasons but there is a good economic case for it.)

For the most part, you can’t really plan for no deal. There are however some things the government could prepare for. They could, for instance, start hiring additional staff for customs checks and investing in a bigger IT system to be able to handle the increased volume of work that would need to take place at the British border. It would need to begin issuing compulsory purchases to build new customs posts at ports, particularly along the 300-mile stretch of the Irish border – where Northern Ireland, outside the European Union, would immediately have a hard border with the Republic of Ireland, which would remain inside the bloc. But as Newsnight’s Christopher Cook details, the government is doing none of these things.

Now, in a way, you might say that this is a good decision on the government’s part. Frankly, these measures would only be about as useful as doing your seatbelt up before driving off the Grand Canyon. Buying up land and properties along the Irish border has the potential to cause political headaches that neither the British nor Irish governments need. However, as Cook notes, much of the government’s negotiating strategy seems to be based around convincing the EU27 that the United Kingdom might actually walk away without a deal, so not making even these inadequate plans makes a mockery of their own strategy. 

But the frothing about preparing for “no deal” ignores a far bigger problem: the government isn’t really preparing for any deal, and certainly not the one envisaged in May’s Lancaster House speech, where she set out the terms of Britain’s Brexit negotiations, or in her letter to the EU27 triggering Article 50. Just to reiterate: the government’s proposal is that the United Kingdom will leave both the single market and the customs union. Its regulations will no longer be set or enforced by the European Court of Justice or related bodies.

That means that, when Britain leaves the EU, it will need, at a minimum: to beef up the number of staff, the quality of its computer systems and the amount of physical space given over to customs checks and other assorted border work. It will need to hire its own food and standards inspectors to travel the globe checking the quality of products exported to the United Kingdom. It will need to increase the size of its own regulatory bodies.

The Foreign Office is doing some good and important work on preparing Britain’s re-entry into the World Trade Organisation as a nation with its own set of tariffs. But across the government, the level of preparation is simply not where it should be.

And all that’s assuming that May gets exactly what she wants. It’s not that the government isn’t preparing for no deal, or isn’t preparing for a bad deal. It can’t even be said to be preparing for what it believes is a great deal. 

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