What's the UK's credit rating all about then?

In the past week or so we've seen warnings from one of the leading credit rating agencies that although the UK is holding on to its top class credit rating for now, it might have to consider cutting its assessment. The veiled warning was that they might not wait too much longer before they make a cut. However, before we get too gloomy there's a couple of things to take on board.

Firstly, credit ratings agencies don't run the country. You might very reasonably point out that some people are not best pleased with credit rating agencies at the moment as they played at least a part in getting the banking system to its point of near collapse. The allegations are that because the ratings agencies were being leant on by the banks then the credit rating agencies aren't entirely objective to put it politely. Which makes a "...so why listen to them now?" seem reasonable. There might just be something in that when ratings were going up, but it's not exactly obvious to us that the same applies when ratings are going down.

And, if the UK's rating went from AAA to the next level down of AA+ it wouldn't be the end of civilization, Saudi Arabia is presently on this rating, and whilst it's safe to assume they've dropped down from AAA they don't seem to be in terminal decline. At the other end of the league tables Ecuador and Ukraine have CCC- and CCC+. Unsurprisingly Zimbabwe seem to have been relegated - they don't have a rating.

Just in the same way as you would pay more if you messed up your personal finances, if the UK's credit rating goes down it'll find it a bit more expensive to borrow in the markets. Any money the Government borrows will have to be at a higher rate of interest, which ultimately means that we all pay for that somewhere down the line.

At the moment the ratings agencies are spooked by borrowing by the Government climbing rapidly towards a level where the borrowings will be the equivalent of the UK's annual turnover. That means that we'll all be paying more to service the interest payments on the debts that the Government has taken on on our behalf.

If you put rising debt, and a rising cost of borrowing together that doesn't look like a good position to be in. As the agencies suggest, you can't go on like that forever; spending, not saving money. Something has to change. Effectively Labour seem to be betting their shirt on the UK coming out of recession before this happens.

We've never really thought of Alister Darling as a poker player until now.....

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