The UK openly discusses recovery at the end of the decade...
....could austerity supporters here live with that truth?
Britain’s downgrade should refocus the chancellor and the central bank on growth
THE surprise about Britain’s first-ever credit-rating downgrade—by Moody’s on February 22nd—was not that it happened, but how little effect it had. That was partly because the markets were expecting it and partly because the rating agencies themselves have been downgraded: the fact that they gave their imprimatur to toxic assets in the bubble years has tarnished their reputation. Investors such as pension funds no longer blindly follow ratings in deciding what to buy and what to avoid. Together with the fact that America and France are already in the second tier Britain now occupies, that explains why the downgrade did not trigger the automatic sell-off it once would have. Sterling fell slightly—but so did gilt yields, as investors took fright from the Italian elections (see article).
Nor did the downgrade do as much damage to George Osborne, the chancellor of the exchequer, as might have been anticipated (see Bagehot). Mr Osborne was already unpopular, thanks to a budget last year that contained an unpopular tax cut for the highest earners and a series of fiddly measures on caravans and hot pies; and he has tied his reputation to an austerity programme aimed at maintaining the country’s credit ratings. But he is helped by the fact that Britons still blame the opposition Labour Party for getting the country in a mess by overspending. Though they dislike the chancellor, they seem—rightly, in this newspaper’s view—to accept the need to cut the deficit. Ed Balls, the shadow chancellor, therefore railed against Mr Osborne to little effect. The prime minister, David Cameron, is sticking to his chancellor, and austerity.
But the downgrade cannot lightly be brushed off. That is because growth is vital: if Britain’s economy continues to flatline, Mr Osborne’s plan to balance the budget by 2018 will fail. His benefits bill runs to £175 billion ($265 billion), much of it spent on income- and housing-support. Growth would cut dependency, and his outgoings. Tax receipts, weak of late, would be bolstered if the economy expands. Moody’s downgrade, and its prediction of a limp expansion, justifies a rethink