Borrowing costs 'won't spike' if UK has credit downgrading

Click to follow
The Independent Online

Britain has no reason to fear a spike in borrowing costs if stripped of its AAA credit rating, the Government's fiscal watchdog suggested yesterday.

"It's not entirely clear that [a downgrade] would be providing any new information to the markets that they hadn't already managed to deduce," the Chairman of the Office for Budget Responsibility, Robert Chote, pictured, told the Treasury Select Committee yesterday.

At last week's Autumn Statement the Chancellor, George Osborne, conceded he is likely to miss his self-imposed target of putting the national debt on a falling trajectory as a share of GDP by 2015-16. Fitch warned that this "weakens the credibility of the UK's fiscal framework", prompting speculation that the agency will downgrade the UK next year.

Some eurozone nations have seen their borrowing costs spike after downgrades. But Mr Chote pointed out that the US and France had not seen their borrowing costs increase after losing their AAA status. He also suggested to MPs that a country like the UK, which can print its own currency, is unlikely to default. "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 can print its own currency is a slightly debateable premise" he said.

Mr Chote also denied the accusation from some Labour members of the Treasury Committee that the OBR had come to the aid of Mr Osborne by revising down its estimate of the size of the structural deficit.