Cameron plays down status of top credit rating

LONDON Sun Jan 6, 2013 1:31pm GMT

1 of 3. Prime Minister, David Cameron (R) speaks on the BBC's Andrew Marr Show in London January 6, 2013.

Credit: Reuters/Jeff Overs/BBC/Handout

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LONDON (Reuters) - Prime Minister David Cameron said the credibility of his deficit-cutting policy was more important than the judgment of credit rating agencies, as the threat of third recession since the financial crisis looms.

Britain has held onto its top triple-A credit rating while the United States and France have suffered downgrades, but that endorsement has looked increasingly shaky as the economic outlook darkens.

A loss of the rating would be a blow to Cameron and his Conservative-led coalition, which has staked its political reputation on maintaining the top rating and nursing Britain's economy back to health by cutting its deficit.

Cameron told BBC television on Sunday the opinion of the international debt markets was more significant than a credit rating.

"What matters most of all is are you able to pay your debts, maintain your debts at a low rate of interest," he said.

"The ratings you have are all hugely important, but in a way the real test is, what are the interest rates the rest of the world is demanding in order to own your debt."

Ministers have been increasingly playing down the significance of credit ratings as the economy struggles and the crisis in the euro zone, Britain's largest trading partner, reduces the near term prospects for growth.

Cameron said the key to keeping the faith of financial markets was the government's programme of cutting state spending to bring its deficit under control.

"You can only keep your interest rates low if you have a credible strategy for getting on top of your deficit and getting on top of your debt," he said.

Britain has seen the interest rate on its government debt fall to extremely low levels, thanks in part to the Bank of England buying 375 billion pounds of the debt, while rates have soared in euro zone countries like Greece, Spain and Portugal.

Cameron said it was important the Bank kept interest rates low to help companies expand and help the housing market, but dismissed a suggestion that the bank's incoming head Mark Carney had been hired to inject a dose of inflation into the economy.

"Right now Britain needs low interest rates because we need businesses to get out there and invest. It lets people get onto the housing ladder. So we want to maintain a situation where low interest rates are possible," he said.

Data on Friday suggested Britain's economy may have shrunk in late 2012, raising the chances of the country sinking back into its third recession since the 2008-09 financial crisis.

Last month rating agency Fitch said Britain's credibility had been damaged by government forecasts that it would not meet a key debt reduction target, and said it would review its triple-A rating later in 2013.

(Reporting by Tim Castle; Editing by Mike Nesbit)

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Comments (10)
JohnD36 wrote:
I find Prime Minister Cameron’s logic regularly quite difficult to follow. For example, he states that our credibility with international money lenders is more important than the judgement of the credit rating agencies. Surely many lenders are constitutionally (in their own terms) duty-bound to abide by the recommendations of these agencies and that loss of our AAA status would both greatly reduce the availability and increase the cost of any future borrowing.

I also do not understand the rationale behind paying off the deficit in order to secure further loans which will only increase that deficit yet again. But simple arithmetic was never my strong point!

Jan 06, 2013 1:54pm GMT  --  Report as abuse
Raymond.Vermont wrote:
Bond rates back in 2007 were around 5.5%, now they around the 2% mark.(having been down to near an all time low of 1.5%)

Essentilly the ratings appear to be directed by whatever the wind direction is flowing.

Jan 06, 2013 1:59pm GMT  --  Report as abuse
DR9WX wrote:
“What matters most of all is are you able to pay your debts, maintain your debts at a low rate of interest,” he said.

That’s quite a change mid sentence. He goes from ‘paying debts’ to merely being able to ‘manage the debt’ provided interest payments are really low.

That’s the plan then. As the debt grows we just reduce interest rates. So when the debt doubles interest rates need to halve.

It might be a plan but I don’t think it’s a good plan.

If you are unsure as to who is buying all this government debt, it is people with pensions (public and private), savings and investments. So everything is fine. Until we start defaulting or hyperinflating. At which point people with savings, pensions or investments lose a great deal.

There is no need to panic. The people in charge of all this know what they are doing. Remember Gordon Brown? The unelected Prime Minister, he sold half our gold for £6,000 a kg when it is valued at £33,000 a kg now. That’s right, Mr ‘No more booms and busts’ doesn’t even know what purpose gold serves. So he sold half of our countries gold. The Queen recently asked Mr Osbourne about gold he told her we did have some left. Fantastic, the chancellor doesn’t know what purpose our gold reserves serve. Our Queen does, I do, do you?

Jan 06, 2013 4:50pm GMT  --  Report as abuse
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