BRITISH CHANCELLOR of the exchequer George Osborne was boosted yesterday with the lowest inflation figures for 15 months, just hours after a ratings agency warned that the UK’s triple-A credit rating could be cut.
The move to negative watch from Moody’s praised Mr Osborne for his tough spending cuts but went on to warn that they have helped to curb economic growth – a charge repeatedly made by the Labour Party since it was ousted from office.
Describing the Moody’s announcement as “a reality check”, Mr Osborne said it showed that “Britain has to deal with its debts, that we can’t waver in the path of dealing with our debts”. He said that it was yet another reminder that Britain doesn’t have an easy route out.
Leading government members seized on the latest inflation figures as proof their actions were working. The consumer price index fell to 3.6 per cent in January from 4.2 per cent the month before – now that last year’s VAT tax rise is no longer included.
The Bank of England has consistently promised that inflation will fall this year to 2 per cent or close to it. It is essential it does if it is to have the opportunity of adding even more than £600 billion (€718 billion) to the money supply through quantitative easing.
The warning from Moody’s that the UK was now on negative watch got little reaction from the markets, though a formal downgrade, if it comes, would be expected to raise Britain’s borrowing costs on international markets. However, this did not happen following the downgrading of the United States’ accounts recently, while Japan is enjoying historically low borrowing costs despite the fact that its economy has been in the doldrums for over two decades.
Labour’s Ed Balls said: “A change of course is needed . . . It is a disaster for our country and the world to make the mistake of the 1930s. The ratings agencies are starting to get there. I’m afraid our chancellor is still in complete denial about the state of the economy and the failure of his policies.” Former Labour chancellor Alistair Darling expressed a degree of sympathy for Mr Osborne: “I don’t think you can possibly underestimate the difficulties the present government has got. It is in a very difficult position. This is going to be a long, long haul.”
Before the last election, Mr Darling promised to cut the UK’s structural deficit in half by 2015, more slowly than the Conservatives, but “as it turns out” the Conservative position is not “a million miles away now from where we would have ended up”.
He added: “My concern, as it’s always been ever since the day this government took office, is I don’t think they recognised the damage they did with the rhetoric they used where they really dashed expectations. They really suppressed any hope that things were going to get better.”
