* The UK is NOT on negative watch. The markets will find this very reassuring.
"The stable outlook on the UK's Aa1 sovereign rating reflects Moody's expectation that a combination of political will and medium-term fundamental underlying economic strengths will, in time, allow the government to implement its fiscal consolidation plan and reverse the UK's debt trajectory."
I assume Moody's have factored in the current expectation that labour will win the next election, so I assume the government they are referring to which will carry out fiscal consolidation is a labour one... .
" Moody's now expects that the UK's gross general government debt level will peak at just over 96% of GDP in 2016."
...since they dont expect any fiscal consolidation to be effective until a year after the next general election.
* Moody's have criticised slow economic growth but also applauded austerity.
"The main driver underpinning Moody's decision to downgrade the UK's government bond rating to Aa1 is the increasing clarity that, despite considerable structural economic strengths, the UK's economic growth will remain sluggish over the next few years due to the anticipated slow growth of the global economy and the drag on the UK economy from the ongoing domestic public- and private-sector deleveraging process. "
ie moody's say public deleveraging is causing slow growth (ie cuts). Ok, they say the private sector is doing the same, but that is exactly why classic economic theory calls for a government to deliberately do the opposite.
"The sluggish growth environment in turn poses an increasing challenge to the government's fiscal consolidation efforts, which represents the second driver informing Moody's one-notch downgrade of the UK's sovereign rating. "
ie this slow growth (which they just said was part caused by government spending cuts) will make it impossible for government to cut its borrowing. The plan as originally outlined by the tories cannot work, it is self-defeating.
"When Moody's changed the outlook on the UK's rating to negative in February 2012, the rating agency cited concerns over the increased uncertainty regarding the pace of fiscal consolidation due to materially weaker growth prospects, which contributed to higher than previously expected projections for the deficit, and consequently also an expected rise in the debt burden."
ie they already warned the government that it would not be able to cut borrowing if growth fell.
"The rating agency says that it would have expected it [debt] to peak at a higher level if the government had not reduced its debt stock by transferring funds from the Asset Purchase Facility -- which will equal to roughly 3.7% of GDP in total -- as announced in November 2012. "
ie things would be even worse if the government had not fiddled the books?
They warn "downward pressure on the rating could arise if government policies were unable to stabilise and begin to ease the UK's debt burden during the multi-year fiscal consolidation programme."
They are emphatically NOT saying that the UK should spend more.
Couldnt find where it says that?
They are saying that less should be spent in existing areas (ie the big state expenditure including benefits, NHS, Education, Defence) and more put into investment for growth (which could for example be a cut in CT).
Hmm...couldnt find any of those mentioned?
What we are seeing from Moody's is a realisation that the Conservatives have not cut hard enough or fast enough. This has always been the worry.
Nor could I find that...
What is needed from Balls is a statement that he accepts the market facts of life that austerity must be applied and that he recognises that Osborne has not been cutting hard enough and fast enough.
No, still dont see where Moodys say that at all?
" the underlying economic strength and fiscal policy commitment which Moody's expects will ultimately allow the UK government to reverse the debt trajectory"
"downward pressure on the rating could arise if government policies were unable to stabilise and begin to ease the UK's debt burden during the multi-year fiscal consolidation programme."
Hollande can get away with it because the markets (and Hollande) know that the reality is that Germany MUST support France - so France has a free ride on Germany.
Youre saying we would be better off inside the euro?
Thing is, its all a bit delphic. No one disagrees that reducing the deficit is a good thing. the difficulty is whether spending cuts will in the medium term increase or decrease the deficit.Moodys are saying that if things come right they will increase the rating. If not, they may reduce it again.