Speculation grew yesterday that George Osborne's economic credibility could be about to suffer a stunning blow as his deputy sought to downplay the importance of the UK's vaunted AAA credit rating.
Danny Alexander, the Chief Secretary to the Treasury, told the BBC that the UK's top-notch status "is not the be all and end all". That was in sharp contrast to the Chancellor's emphasis in recent years on the overriding economic importance of Britain retaining its AAA status.
In opposition, Mr Osborne said keeping the gold-plated credit rating was one of the "benchmarks" against which he wanted his economic record to be judged.
The words of Mr Alexander, pictured, were interpreted in some quarters as the Government preparing the ground for a highly embarrassing downgrade of the UK by one of the major agencies.
The country's AAA status has come under pressure over the past years as the recovery has stalled and public borrowing forecasts have risen as a result. Major rating agencies put the UK on negative watch earlier this year, implying that they might strip Britain of its AAA status. Although Standard & Poor's gave the all clear last month, Moody's still says the UK is at risk of a downgrade. And Fitch is expected to give its verdict in the coming months.
However, most City analysts believe that the economic impact of the UK losing its AAA status would be insignificant. "It wouldn't be the end of the world. It would already be priced in by the markets," said Andrew Goodwin, senior economic adviser to the Ernst & Young Item Club. "It's more of an issue of national psyche and national pride".
When the United States was downgraded from AAA status last year by Standard & Poor's in the wake of bitter partisan wrangling in Congress over the national debt ceiling, Washington's costs of borrowing fell as investors disregarded the agency's analysis and continued to plough their money into US government bonds.
Yet a UK credit downgrade would generate still more political embarrassment for Mr Osborne, who has come under fire for his radical deficit reduction strategy which critics argue has helped to plunge the UK economy back into recession. In the second quarter of 2012 the UK economy contracted by 0.7 per cent according to the Office for National Statistics.
Mr Alexander said that putting the UK economy back on the right track was more important than retaining the AAA. "What matters is have we got the right policy mix for the country to get people back into work, to support economic growth, to deal with the huge problems in our public finances, and the credit agencies reflect on those things and the ratings they give are a reflection of the credibility of that mix" he told the BBC's Today programme.
Mr Alexander's words were an echo of the view of Adam Posen, a member of the Bank of England's Monetary Policy Committee.
Mr Posen told the Treasury Select Committee in February: "I have never given sovereign ratings that much concern…I do not view sovereign ratings as the be-all and end-all of our credibility with markets."