Budget ‘not enough to save AAA rating’

THE Chancellor, George Osborne, may not have done enough in last week’s Budget to prevent the UK from losing its coveted AAA credit rating, according to senior economists.

Simon Ward, chief economist at Henderson Global Investors, said: “Osborne is taking quite a risk, I don’t think he’s done enough to preserve the AAA rating. I think he needs to go faster in cutting current public spending, as its quite backend loaded.”

Howard Archer, chief economic adviser at think tank Global Insight, said: “We suspect that the growth projections for 2014-16 are optimistic. This suggests that the Chancellor may be faced with having to announce further austerity measures at some future date, particularly if he is determined to keep the UK’S AAA credit rating. However, this would risk further holding back growth.”

Credit ratings agencies Moody’s and Fitch have both put the UK’S AAA rating on negative watch.

The agencies have effectively warned that the British economy is in danger of experiencing a paradox where cuts in government spending serve to depress economic activity, rather than bolster investor confidence.

The latest indication on the state of the economy will come this week when the CBI distributive trades survey for March, which is out on Tuesday, provides data on whether retail sales picked up during the month. In addition, GDP contraction in the fourth quarter of 2011 is expected to be confirmed at 0.2 per cent quarteron-quarter.

The UK may have to forge new trading links in a bid to boost growth, according to a senior source at the Bank of England. The source said: “The UK is moving away from the US in economic terms, with there being a decline in trade between the two countries.

“The UK will instead try to increase economic ties with Commonwealth nations and Asia, and the emerging markets generally.”

The London Olympics this summer will provide a boost to Britain’s stuttering economy during the third quarter, according to the independent watchdog, the Office of Budget Responsibility.

The OBR believes that sales of tickets to the Games events will be worth approximately 0.1 per cent of GDP. Although ticket sales took place last year, they will not be included in the official retail sales data until the Games have taken place.

The Government will relax the Sunday trading laws from July 22 to September 9 to take advantage of the Games.