The UK's Credit Rating Dropped Last Week

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Last Friday, while you were out spilling fluids and clattering haphazardly around dark rooms, Moody's ratings agency downgraded the UK’s cherished credit rating from a once-heralded AAA to a not full-blown scrub but still slightly shittier AA1. Basically, this means we’re now slightly less trustworthy in a financial sense than we were this time last week.

So how did Chancellor of the Exchequer George Osborne react to the news that his strategy is on the rocks? “Double-down”, he asserted through clenched teeth, as Cameron silently downgraded his mate's political credibility and watched while a pool of sweat gathered under the arms of his suit. "Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it,” he repeated, reassuringly.

The decision by Moody’s, which grades countries’ abilities to pay back money and therefore impacts on borrowing costs, will have negligible effect on the UK’s economy, only threatening consumers by making the pound a little weaker. In economic terms, it’s more like the moment your index finger pushes through a sheet of Charmin Ultra Soft 2-Ply than an out-and-out shit storm. Things are more worrying for the chancellor himself, who has made a habit of stressing repeatedly and vigorously that the AAA rating should be used as a yardstick to measure his performance.

Business secretary Vince Cable wasn't far off the mark when he wrote ratings agencies like Moody's off as “tipsters” because of their atrocious recent records. These are the guys who gave mortgage-backed securities – i.e. the very financial instruments that blew giant holes in the balance sheets of the world’s banks and caused the global crisis – AAA ratings. In fact, several of Moody’s peers are currently being sued by the US government for being what they describe as the “key enablers of the financial meltdown”.

So if Moody's are so untrustworthy when it comes to predicting the financial future, why did Osborne place so much faith in them?

In the first stages of the crisis, Moody’s and their contemporaries endlessly repeated the need for governments to make cutbacks and rein in spending, and it restated these beliefs in Friday’s announcement. As Shadow Chancellor Ed Balls pointed out, this led Osborne to shift from justifying the cuts as necessary to maintain the AAA rating, to pointing out the rating downgrade justified the cuts. In short, his theory used to match their theory and now it doesn't. As the country’s growth flatlines, the evidence against the severity of the cuts mounts.

Now, I’m not saying Osborne should have committed a full U-turn on the back of Moody’s comments. What he needed to do is go back to his room, have a shower and a coffee, and think about whether the continued bad news should lead to a change in policy or, at the very least, a toning down of his rhetoric.

He could have played up the government’s move to inject money into the economy through infrastructure projects and highlighted how the AA1-group isn’t really that bad company to be in (it takes silver place in a race of 21 categorisations). Instead, he returned to the table on Monday afternoon with a smirk on his face and proceeded to belligerently repeat how it was all Labour’s fault, telling us his strategy is working, it’s being tested every day and we’re winning, apparently.

Moody's haven't just downgraded the UK's credit rating, they've effectively discredited Osborne's justification for taking his scissors to government spending.

Follow Christopher on Twitter: @MediaSpank

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