George Osborne defends austerity measures after threat to UK AAA credit rating

George Osborne defended the Government’s tough austerity measures after Britain was threatened with losing its coveted AAA credit rating amid fears over poor growth prospects and potential fall-out from the eurozone crisis.

Ratings agency Moody’s put the UK on “negative outlook” last night, increasing the chance of the country being stripped of its cherished status.

Shadow chancellor Ed Balls said the move was “a significant warning” and urged the Government to spark economic growth, but the Chancellor, Mr Osborne, said it was “a reality check for anyone who thinks Britain can duck confronting its debts”.

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The Chancellor said: “We can’t waver in the path of dealing with our debts and here is yet another organisation warning Britain that if we spend or borrow too much we are going to lose our credit rating but, more importantly, what that leads to potentially is a loss of investor confidence in our economy.

“If people don’t invest in our economy, you don’t get growth and you don’t get jobs.”

Moody’s said there are a number of risks to the UK’s top rating, the first being a combination of slow growth with “reduced political commitment to fiscal consolidation” or a “failure to respond” to worsening conditions.

Other dangers were “a sharp rise in debt-refinancing costs, possibly associated with an inflation shock or a deterioration in market confidence over a sustained period” or a fresh crisis in the banking sector.

Significant structural reforms meant the economy was expected to return to 2.5 per cent trend growth rate even if more slowly than previously anticipated, Moody’s said.

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