UK is acting like a sub-prime borrower
Posted on March 15th 2010
As I said last week, Alistair Darling must put forward a credible plan for the UK to repay its national debt. Alistair and Gordon are making the City very jittery amid concerns that the lack of action is putting the country’s credit rating in jeopardy. If we lose our AAA rating the UK in effect will become a subprime borrower, only able to raise debt at much more expensive rates and from fewer sources. The impact if this happens will be swift and will cause long term damage; BBR would almost certainly increase as would Libor and our mortgage payments would rise.
The really damaging part would be that the government would have lost control of short term interest rates which in my view is the number one reason why repossessions have stayed so low. In order to keep the confidence of the rating agencies Alistair must lay out clear plans as to how we are going to cut costs and the cuts must happen immediately.
I agree with the CBI that at the moment Alistair and co look like they are taking a very leisurely approach to this problem and would go one step further. I think rather than considering spending cuts the Labour party have actually increased spending. Is it just me or has anyone else noticed the explosion in the amount of roadworks started in the last six months? Maybe I have got tunnel vision but this does not feel like a country tightening its belt more like a subprime borrower trying to remortgage its way out of trouble.
