Tough: UK is under negative outlook, no need to blame the euro

LONDON | Will Moody’s tear out the British triple-A badge before those precautionary 18 months go? If the rationale of the warning issued by the financial risk ratings agency to the Coalition government is that the European neighbourhood may in the near future find even harder to charm investors and so will drag the island’s economy with them towards deeper recession, then the top award became meaningless long ago. Markets know this, but still, it counts for funds’ statutory limitations about where they can or cannot allocate capital.

Paying back the outstanding public debt isn’t going to get any easier for any state whose debt-to-GDP ratio has surpassed certain level. In spite of the opposition’s gesturing, though, Moody’s displayed a language that prime minister David Cameron and his euro sceptic parishioners did surely recognise:

“The primary driver underlying Moody’s decision to change the outlook on the UK’s Aaa rating to negative is the weaker macroeconomic environment… the fact that the weaker environment is also, in part, a by-product of the ongoing crisis in the euro area. Although the UK is outside the euro area, the crisis is affecting the UK through three channels: trade, the financial sector and consumer and investor confidence.”

One of the  many possible conclusions: Mr Cameron’s belligerent attitude against the European Union is destined to reap meagre results, notwithstanding the attraction it may be gaining among voters.

A different reading of Moody’s note would be that the UK must take its seat in Brussels and participate in the European consensus, which sometimes will be Germany-lead and Britain-lead in other occasions. That would free the Coalition government from its Tory-led obsession with Europe and focus on improving ordinary Britons’ lives, because

“A combination of a rising medium-term debt trajectory and lower-than-expected trend economic growth would put into question the government’s ability to retain its Aaa rating. The UK’s outstanding debt places it amongst the most heavily indebted of its Aaa-rated peers, alongside the United States and France whose Aaa ratings also carry a negative outlook.”

After all, as Azad Zangana, Europe economist at Schroders, said:

“In our view, the change in outlook from Moody’s for the UK should be taken as a warning… the government is being warned that it must do more to boost growth through structural reforms.”

And the truth is that, with the latest annual CPI inflation rate falling to 3.6%, UK households still would need an extra £33 billion to maintain the same standard of living enjoyed 12 months ago. MGM Advantage, a retirement income specialist, estimates that to maintain the same living standards as a year ago, the UK would need to spend an estimated additional £524 per person.

By MGM Advantage’s calculations, a typical UK household would need to spend an extra £1,259 a year to maintain their standard of living from a year ago.

Labour unions’ released Tuesday their own unemployment numbers, by the way, that offer a grimmer picture for a crisis way out strategy to face (they may have read our Washington correspondent Pablo Pardo?) but that fit in the sorry situation in the UK.

“Using the American U6 measure of unemployment, which includes unemployed, discouraged, marginally attached and under-employed workers, would mean unemployment in the UK standing at 6.3 million, higher than any point since the early 1990s.”

While the UK has two common measures of joblessness, that is, International Labour Office ILO unemployment (currently 2.68 million) and the claimant count (1.6 million), the US uses six measures of joblessness that incorporate long-term unemployment, recent job losses, redundancies and under-employment, such as working part-time because full-time work isn’t available. Using official UK government data, the Trades Union Congress has replicated the six measures of US unemployment and found that

“using the broadest measure of joblessness, U6 or ‘total’ unemployment in the UK is currently over 6.3 million – the highest it has been since records began in April 1993, when it was 6.1 million.

“The TUC is calling on the government to acknowledge the scale of the jobs crisis, rather than simply repeat the ill-informed claim that there are plenty of jobs out there… The TUC believes that without government stimulus, growth will continue to falter which will cause long-term damage to the UK economy.”

Now, add a European Monetary Union crumbling from both sides of the Mediterranean, from Greece to Portugal.

About the Author

Victor Jimenez
London contributor at, reporting about the City and the Eurozone economies. He regularly writes for Spanish newspaper group Prensa Ibérica--some of his features include shared work with journalists of The Daily Telegraph and the BBC.

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