Yesterday, OBR Chairman Robert Chote appeared before the Treasury Select Committee to discuss the OBR’s forecasts for the Autumn Statement. About an hour in, Conservative MP Brooks Newmark asked Chote what would happen if Britain lost it’s AAA credit rating. Remember that for the last 2 and a half years, George Osborne has based his whole economic strategy upon preserving our AAA rating – to lose it would apparently mean higher interest rates, less investment, lost jobs. But here’s Robert Chote responding to Newmark:
“Well it’s not entirely clear that that [a downgrade] would be providing any new information to the markets that they hadn’t already managed to deduce I think from the information on which presumably the credit ratings agencies would have drawn their conclusions. I think we’ve seen other countries suffer that, and it’s not had an obviously noticeable impact on market views. Obviously, the notion of how sensible it is to view this as a change in default risk, when the notion of default risk for a country that basically can print its own currency, is a slightly debatable premise to begin with.“
Here’s the video. The relevant bit starts at 10:31:30:
A downgrade of our credit rating downgrade now looks inevitable and apparently Osborne’s colleagues in the Cabinet are urging him to do a 180 and start downplaying the consequences of a downgrade.
The way this story is changing reminds me a bit of the last Labour Government’s changing story on the invasion of Iraq. First they attempt to scare us into accepting some awful policy (WMDs or Greek style bankruptcy), then they change it to a story about human rights (or now, changing the ‘benefits’ culture). Finally, once the policy is embedded, the story becomes “If we turn back now it would be a disaster”.
So from Robert Chote, we now know losing our AAA rating probably won’t much effect interest rates. We know the mantra “There’s no money left” is idiotic (we have our own currency). We also know that changing course would not lead to disaster as Osborne contends. At the end of the video, Chote also says that an increase in Government borrowing wouldn’t necessarily have any impact upon market expectations either. So what rationale for persisting with austerity remains?