Friday, May 22, 2009

Standard & Poors

I am quite at the actions of ratings agency Standard and Poor's. Yesterday they have put out a release saying that they are downgrading their UK outlook from nicked from the FT):

The rating could be lowered if we conclude that, following the election, the
next government’s fiscal consolidation plans are unlikely to put the U.K. debt
burden on a secure downward trajectory over the medium term… Conversely, the
outlook could be revised back to stable if comprehensive measures are
implemented to place the public finances on a sustainable footing, or if fiscal
outturns are more benign than we currently anticipate.
Which is essentially them saying that the government should cut public spending, and that's what really winds me up. The announcement does in my view blur the lines between the political in the professional. In this case I can't see how S&P can say with any accuracy that reducing the deficit at their faster rate will somehow leave the economy in better shape to pay off the national debt.

What worries me about all this is just how much the of the government's political priorities could end up being dictated by the needs of financial interests. It's not really a problem yet, but if Moodys and Fitch follow suit (which they appear not to have done) then it could force the government to reconsider it's spending plans and I have doubts as to whether this is in the best interests of the economy.

1 comment:

Paul said...

Couldn't agree more.

In fact, I did, saying much of same though more verbosely) yesterday)