Osborne under pressure to alter government’s economic plan

Credit rating downgrade.

New Statesman
Photograph: Getty Images.

George Osborne is under pressure from Conservatives and Liberal Democrats backbenchers to alter the government’s economic plan as Britain’s credit rating was downgraded to AA1 from AAA by Moody’s.

On one side, an influential Tory MPs group is planning to utilise the AA1 rating to pressurise the government for further tax and spending cuts in March Budget to stimulate the economy, while on the other side Lib Dems lobby group is arguing for the government to spend more money on housing.

David Ruffley, a leading member of the Conservatives group, told the Financial Times: “Some of us would like him to cut public spending even more in order to fund tax cuts to inject a fiscal stimulus into the UK economy at the Budget.”

One of the Lib Dem backbenchers told FT: “We need quick-return, high-circulation options, like affordable housing.”

Restating his call for more housing on Sunday, business secretary Vince Cable said that further tax and spending cuts would be “foolish and counterproductive”.

Osborne had been saying that that Britain’s credit rating is a benchmark of the government’s economic success. He, however, insisted that downgrade of credit rating would “redouble” his commitment to the so-called Plan A.

“He set up the AAA rating as a defining benchmark. No one does that. It was rank inexperience – foolhardiness verging on stupidity,” One senior Tory MP told about the chancellor to FT.

Kevin Daly, an analyst at Goldman Sachs, told FT: “With sterling already on a weaker trend as a consequence of the Bank of England’s easier stance, the largest impact from the downgrade could be seen in the exchange rate.”

Analysts predict a fall in pound when trading opens on Monday.