Economy: Rating Agencies

Lord Barnett Excerpts

Wednesday 27th February 2013 Lords Chamber

Asked By

[Lord Barnett]

To ask Her Majesty’s Government what is their assessment of the role of rating agencies and the impact of any downgrade of the United Kingdom’s rating.

[The Commercial Secretary to the Treasury (Lord Deighton)]

My Lords, last Friday Moody’s downgraded the UK rating to AA1, with a stable outlook. It says that the UK’s credit-worthiness remains extremely high but warns that it could downgrade the UK rating further in the event of,

“reduced political commitment to fiscal consolidation”.

The credit rating is one of the important benchmarks for any country but near-historic low gilt yields continue to reflect the credibility earned by the Government’s economic strategy.

[Lord Barnett]

I think I thank the Minister for that Answer. If it is all so good now, why did he covet the AAA rating so strongly? Is it not true that the United States had a downgrading, and that it was not a problem and interest rates remain low? Another risk is that the pound will drop further. If it does, there is a real risk to lenders, who could lose a lot of money as it is repaid in downgraded pounds. In those circumstances, would the Chancellor be minded to do anything at all?

[Lord Deighton]

I thank the noble Lord for those observations, which contain several of different questions. If you review Moody’s analysis of the UK economy you could not see a stronger recommendation of the Government’s policy of fiscal consolidation. I commend it to everybody as background to policy and why it is the appropriate one in these circumstances.

On the specific question about the impact of currency movements on the exposure of various lenders, my experience in those markets tells me that lenders manage their currency exposures very effectively and that the currency devaluation should not increase those particular exposures.