As computers were being shut down and pubs were filling up on Friday evening, ratings agency Moody‘s issued a statement that shook business and political leaders throughout the UK – the removal of the country’s aaa debt status.
During the coalition’s three years of tight fiscal policy, UK Chancellor George Osborne has held up keeping the AAA rating as vitally important for the health of the country’s economy.
Unsurprisingly, the Opposition leapt on the Moody’s announcement, calling the stripping of the triple-A rating a “humiliating blow” for the Government’s economic policy. Government ministers rushed to play down Moody’s decision; business minister Vince Cable said there was “no reason” the re-rating would impact the “real economy”. And Osborne himself claimed Moody’s announcement would simply “redouble” the coalition’s “resolve” over its economic policy.
But what could it mean for the wider economy in the UK? Is Cable right? Is the loss of the triple-A rating unlikely to have an impact on the broader economy?
There are some fears that the downgrade could hit the sterling, which has already fallen steadily throughout the year. If the pound’s value continues to fall, concerns over inflation this year will mount, particularly with much of the country’s food and energy needs coming from beyond its shores. In the early hours of trading this morning, however, there has not been anything like a run on the pound and, if anything, the markets have reacted in an almost disinterested way. The cost of government borrowing is reportedly lower than before the Moody’s downgrade.
In truth, certainly in the short term, the re-rating will just reinforce the gloom over the country’s economic prospects for 2013. Last month, Gfk data indicated some signs of optimism in the UK about the general economic situation but, crucially, there has been no change in the way people view their own financial situation, the analyst firm said. And GfK’s index is still firmly in negative territory. Headlines over the debt downgrade will register with UK consumers and likely act as another reason to hold back on discretionary spending.
On Thursday, a day before the downgrade, the chief executive of the UK’s second-largest retailer, Asda, said he believed the macro-economic environment in the country would be similar this year to last. “We see this year as being a very tough year for our customers,” Andy Clarke said.
Now, without wishing to give too much away, just-food’s annual confidence survey of the international food sector does echo the Asda CEO’s thoughts about 2013. This is the second year just-food has carried out the survey and, looking at the results, it seems fewer of you believe the operating environment will improve over the next 12 months than you did this time last year.
On Thursday, we will discuss the results of our international survey in a free live webinar, alongside experts from SymphonyIRI, Grant Thornton and Mintel. You can register to attend the webinar here – it takes place at 3pm GMT.