It will take several years for Britain to regain its cherished AAA credit rating – and for the economy to recover strongly – the former Tory Chancellor Kenneth Clarke admitted today.
His acknowledgement of the scale of the task confronting the Coalition came after ratings agency Moody’s announced it was stripping Britain of its gold-plated status and downgrading the country to AA1 because of its lack of economic growth.
The decision was a major embarrassment to Chancellor George Osborne, who will deliver the 2013 Budget next month, and provoked fresh unrest within Tory ranks over his strategy for breathing new life into the economy.
Vince Cable, the Liberal Democrat Business Secretary, also warned Mr Osborne against using the downgrade as an opportunity for new “slash and burn” austerity measures.
The pound is expected to come under pressure when the markets open today amid fears that sterling could slide towards parity with the euro.
Mr Clarke, a minister without portfolio, said the Moody’s move came as little surprise as the global economic crisis was proving worse than originally feared.
Insisting Mr Osborne was pursuing the correct policies, he told Sky News: “The Americans have already lost their AAA rating and, like us, they are going to have to persist with sensible policies combining getting rid of debt and deficit, at the same time stimulating growth and having an industrial strategy.
“It’s going to take several more years of this in order to get back not just our credit rating, which we will get back eventually, but to get back to sensible economic growth.”
Another former Tory Chancellor, Lord Lawson, backed Mr Osborne but also warned of fresh economic agonies ahead. He said: “We are gradually coming out of this recession, but it’s going to be a very slow, very long, very painful process I'm afraid.”
The downgrade will provide fresh ammunition to Tory MPs agitating for Mr Osborne to be moved. Potential replacements being named include William Hague, the Foreign Secretary, and Philip Hammond, the Transport Secretary.
Adam Afriyie, a Tory MP viewed by some colleagues as a future leader, said the Government was “entering the last-chance saloon” for delivering real growth by cutting spending and reducing high tax rates. He warned: “Without growth, the Government will not secure a Conservative majority in 2015.”
Mr Cable sought to play down the significance of the Moody’s move, describing it as “largely symbolic” and “background noise”.
But in a warning against further spending cuts he said: “I think to embark on a slash-and-burn policy in response to this would be utterly foolish and counterproductive and I am sure we will not be going there.”
He told BBC1’s Andrew Marr Show: “What I am concentrating on in my job in government is factors that create real substantial long term growth -In other words skills training, supporting manufacturing, supporting exports, investing in science. These are the things that really matter.”