The UK failing economy challenges its Triple A Status

Thursday, 26 July 2012
Should a failing economy such as the UK keep its triple A statue just like economies such as Germany, France and Sweden which are bending backward to make economic sense.
Yesterday Britain reported a weaker than expected economic performance meaning the country continued to accept its inability to raise its economic performance about 0 percent. This means that Britain continues to enjoy a recession and it is being said that the deepening recession will cost the country its cherished triple-A credit rating, leading bond investors warned after output fell 0.7 percent in the three months through June.

The Financial Times news paper, report that leading investors said that the foundering economy, which economists had projected would shrink 0.2 percent in the second quarter, was confounding George Osborne’s ambitious austerity program and is likely to spur Moody’s to strip the UK of its top rating.

The credit rating organisation, Moody’s had put the UK on negative outlook back in February this year. Therefore, though they had given thumbs up for the UK austerity program, they had lacked trust in the ability of the chancellor to cut deeply and heavily and still make the economy grow.

“The data are shocking and no amount of excuses about rainfall or the Queen’s Jubilee can explain away such weak growth,” said Alan Wilde of Baring Asset Management to the FT.

“Osborne’s personal ratings for economic competency are plummeting and the credit rating agencies will be deeply concerned by today’s report ... this may well hasten a downgrade.”

Amidst the pain, the British PM, Cameroon who as not been seen in public since the GDP figures were announced is on a charm offensive to woe more than 4,000 business leaders and politicians who'll be in London for the Olympics for various forms of investment forums. He hopes it will generate some £1billion UK investment deal.
Leaders of organisations such as Google, HSBC and the European Central Bank will be attending the meetings, according to reports.

In total, the government hopes the Olympics will add £13billion to UK investment.
Mr Cameron told the BBC that this would come from deals struck during the Games, as well as tourism and other factors.

According to the BBC, figures out on Thursday show that although there has been a fall in the number of new projects, inward investment created nearly 53,000 new jobs last year, which was up 26 percent on the previous 12 months.

Nevertheless, back to the economic data of yesterday, the person in charge of stirring the country's economic direction, the chancellor, George Osborn admitted the country had “deep-rooted economic problems”, but maintained the coalition was “dealing with our debts at home and the debt crisis abroad.”

However, international credit organisations such as Standard & Poor’s which had praised British austerity program launched two years ago, are getting worried. While affirming its stable outlook on the UK in April, Standard & Poor’s warned that “materially weaker economic growth than we currently anticipate over the medium term” could lead to “downward pressure” on the rating, said Financial Times, pointing that the agency forecast growth of 0.5 percent this year - a figure that will now be hard to hit.

The problem here which will make the British economy catch up with the tail wind of downward fall is that bond investors have grown increasingly wary of the threat to the UK’s triple A rating as economic data has continued to weaken. The dismal second quarter data has markedly increased the chances of rating cuts in the future, they said.

“The UK looks vulnerable,” Nick Gartside of JPMorgan Asset Management told the Financial Times. “In terms of its rating and its safe haven status it is an anomaly.”
Moody’s and Standard & Poor's, which have both rated the UK at triple-A since 1978, declined to comment.

Speaking on Channel 4 News last night, the chancellor told Faisel Islam that “Credit ratings are for credit ratings agencies. I’m determined people have confidence in our ability to pay our debts”, after being asked about suggestion that Britain will lose its AAA rating on growth fears.

As the economy continues to worse and the right wing press and media outlets as well as the coalition government keeps on blaming the last government, some people are already, saying that perhaps the best thing that could happen to Britain would be an imminent downgrade. This is because it is only then that the chancellor could accept that his deficit reduction plan has failed and that a different direction of operation could come in. The coalition inherited a growing economy but after two years in office, the economy had barely grown in anyway.
by Scancomark.se Team

Foot note:
We on this network are interested in the UK economy because many of our readers and contributors are based here. We also benefit from the ease to use English language and support from the wonderful media community and business experts here. The fact that Sweden and most Scandinavian smaller economies look on the UK economy as sources of business inspiration. As such, business news from the UK is important for us.

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