Economy: Rating Agencies

Lord Forsyth of Drumlean Excerpts

Wednesday 27th February 2013 Lords Chamber

[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.

[Lord Forsyth of Drumlean]

Will my noble friend confirm that it is the same rating agencies that are apparently of such concern to the Opposition which told us that the junk collections of mortgages, which in part caused the financial crisis, were AAA-rated? Should we not look at what is happening in the real economy rather than at what rating agencies are saying about it? Is it not true that my right honourable friend the Chancellor of the Exchequer is presiding over a remarkable situation, given the shambles that he inherited from the previous Government?

[Lord Deighton]

As always, I thank my noble friend for his important observations. There are, again, several issues in there. First, he is absolutely right—Moody’s refers to this—that two things have caused this downgrade. The first is the sluggish growth of the global economy, which has slowed down the British economy; and the second is the very high levels of public and domestic debt, and the difficulty in driving those down.

On the second point, with respect to the credibility of the rating agencies, there are some very important issues surrounding that, particularly when one discusses complex securities such as the ones that we had in the mortgage-backed market. Frankly, with respect to the sovereign market, all the information used to determine credit assessments is perfectly visible to everyone, which is why the markets’ reaction to the downgrade on Friday was so measured.