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UK's Credit Outlook Upgraded to Stable

donsutherland1

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With the British government outlining an aggressive fiscal consolidation program, the UK's fiscal outlook was upgraded to stable by Standard & Poor's. Bloomberg.com reported:

The U.K. no longer faces the danger of losing its top credit rating at Standard & Poor’s after Prime Minister David Cameron’s government unveiled the biggest spending cuts since World War II to wipe out the country’s budget deficit.

S&P, which has an AAA rating on British government debt, today restored its outlook to “stable” from “negative” after warning in May last year that the U.K. was at risk of downgrade.


Finally, the UK's economy grew about twice the forcecast rate during the recently ended Third Quarter.
 

PeteEU

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Was to be expected.. it is after all a right wing government that is in power. They seem to get better ratings from US owned ratings agencies.. Yes I have zero respect for those agencies since they graded sub-prime crap as AAA.

And growth was 0.8%.. hardly something to brag about. Wait till the cuts are in, and I would wager that growth will poof.
 

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-- Finally, the UK's economy grew about twice the forcecast rate during the recently ended Third Quarter.

We have to be a bit cautious about this - part of the growth was construction work delayed because of a hard winter. Also, there have been suggestions that the ONS figures are very early and may be downgraded. 0.8% growth is high considering all expectations of 0.4% growth.

Was to be expected.. it is after all a right wing government that is in power. They seem to get better ratings from US owned ratings agencies.. Yes I have zero respect for those agencies since they graded sub-prime crap as AAA.

Pete, your dislike of credit ratings agenicies is pretty widely broadcast! :2razz:

And growth was 0.8%.. hardly something to brag about. Wait till the cuts are in, and I would wager that growth will poof.

I doubt it, 1.2% in the first qaurter was higher than expected but we were expecting 0.4% growth. I think it'll be nearer 0.5 / 0.6% when the dust settles however the underlying trend continues to be strong.

Try this link. We're a strong economy and will recover - we're more likely to anyhow with better than expceted figures as this changes the mood within the country and brings us confidence.

Next quarter might dip - but in the next 3 or 4 quarters I think you'd lose your wager.
 

donsutherland1

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I agree that economic growth is still weak. But an upside surprise is better than a downside one, especially as the country moves into fiscal consolidation. If the UK can deliver the budget savings to which it has committed itself, the ratings upgrade will be vindicated. Offering a credible plan is just a start. Implementation will be key.
 

Lord Tammerlain

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The economic slowdown from reduced UK government spending has not hit yet, when it does the UK economy will see a slowdown. If private enterprise has not picked up when the government cuts come, then the UK will enter a Ireland or Greece type slowdown. I doubt that the UK private enterprises have the resources to increase economic activity yet (debts have not been worked through)
 

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A mixed blessing. Not being able to borrow money would ruin the economy, government spending was unsustainable. Cameron can either tax more or spend less, both affect consumer spending. When economic growth is such a concern, as it has been the last 4 years, I prefer the latter.
 

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Pete, your dislike of credit ratings agenicies is pretty widely broadcast! :2razz:

It is based on fact. No agency or company that got it so wrong as they did and frankly were either complacent or directly involved in the creating the crash should not only not stay in business but have zero respect for their opinions on anything. If it was up to me all 3 agencies should be charged with fraud and broken up and a fully independent ratings agency should be set up. The very idea that these agencies get money from the very banks and financial institutions to rate these banks and financial institutions stuff.. is.... frankly corruption at the highest level... and with the fact that they all gave toxic assets AAA ratings up to the crash and called Lehman Brothers an AAA rated company up to the very minute they went bust, kinda proves my point.

I doubt it, 1.2% in the first qaurter was higher than expected but we were expecting 0.4% growth. I think it'll be nearer 0.5 / 0.6% when the dust settles however the underlying trend continues to be strong.

They have not revised the first quarter yet I think. Also, 0.8% growth is still not much in an economy that requires certain growth to even maintain the status quo. While I agree the UK is not as bad as the US (which requires 3% growth a year to keep the status quo) it is still not good enough to claim some sort of victory.

Try this link. We're a strong economy and will recover - we're more likely to anyhow with better than expceted figures as this changes the mood within the country and brings us confidence.

I agree, it all has to do with confidence. The whole crisis was made worse by media gloom and ratings agencies. And as long as the media is still pushing doom and gloom, no amount of confidence in the city will help. Confidence is needed in the population and that is not there.

Next quarter might dip - but in the next 3 or 4 quarters I think you'd lose your wager.

Cutting up to 2.5 million jobs will hurt as well as the lower spending from government. The private sector still has credit issues and is not really growing much.
 

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A mixed blessing. Not being able to borrow money would ruin the economy, government spending was unsustainable. Cameron can either tax more or spend less, both affect consumer spending. When economic growth is such a concern, as it has been the last 4 years, I prefer the latter.

The UK had and has no problems loaning money... that is the insane part. The UK budget deficit is one of the worst in the industrialized world, their debt vs GDP is going up faster than any big nation (other than the US) and yet they pay next to nothing on the debt they take out.

If there had been any reality in the situation, the ratings agencies would have downgraded the UK (and US) long ago to reflect the pathetic state their economies were and that would have raised their lending costs. But it did not happen, so they are paying next to nothing for loaning more and more money. That is why the system in my opinion is broken. The US and UK have been rewarded for having massive deficits, where as all others have been punished.
 

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The economic slowdown from reduced UK government spending has not hit yet, when it does the UK economy will see a slowdown.

There is likely to be a slowdown - we all expect it which is why when better than expected figures come out we see confidence return in the financial markets and in our industries.

-- If private enterprise has not picked up when the government cuts come, then the UK will enter a Ireland or Greece type slowdown.

The UK economy is nothing like Ireland's or Greece's. It's also about ability to recover and we have a better structure in place to recover from than either of the countries you mention.

I doubt that the UK private enterprises have the resources to increase economic activity yet (debts have not been worked through)

Surprisingly, some industries are holding onto their cash before investing while others are sound and wish to develop but cannot get loans from the banks - that's the resource problem not industry debt.

-- Not being able to borrow money would ruin the economy, government spending was unsustainable. Cameron can either tax more or spend less --

The real concern is the lack of willpower in either the Labour Govt past or the new LibCon Govt to get to grips with banks starving industry of loans and cash. The money is there - however the banks have so far been unwilling to lend. Even the public owned banks like RBS and Northern Rock prefer not to lend.

Really stupid.
 

Infinite Chaos

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-- They have not revised the first quarter yet I think. Also, 0.8% growth is still not much in an economy that requires certain growth to even maintain the status quo. While I agree the UK is not as bad as the US (which requires 3% growth a year to keep the status quo) it is still not good enough to claim some sort of victory --

Nobody's claiming victory - but certainly the fact that my economy is recovering makes me feel better, the fact we are dealing directly with the huge debt burden makes me more confident of my country's economic future.

-- I agree, it all has to do with confidence --

Crazy isn't it but trying to apply "science" to economics doesn't really work either.

-- Cutting up to 2.5 million jobs will hurt as well as the lower spending from government. The private sector still has credit issues and is not really growing much.

Completely agree regarding the private sector - that's the future of this country but lower Govt spend, quangoes and over-large public workforces are a drain that we cannot afford to simply keep expanding.

Many of the major quangoes that just went served no purpose - other than to keep some people in jobs. Some of them were vital and should be kept going. It's all very well having big Govt - but not when it's just setting up organisations that actually do nothing.
 

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The UK had and has no problems loaning money... that is the insane part. The UK budget deficit is one of the worst in the industrialized world, their debt vs GDP is going up faster than any big nation (other than the US) and yet they pay next to nothing on the debt they take out.

If there had been any reality in the situation, the ratings agencies would have downgraded the UK (and US) long ago to reflect the pathetic state their economies were and that would have raised their lending costs. But it did not happen, so they are paying next to nothing for loaning more and more money. That is why the system in my opinion is broken. The US and UK have been rewarded for having massive deficits, where as all others have been punished.
Well, both countries are known to pay their debts, unlike a country like Italy who, before the euro, revalued its Lire every other year. I think the rating system is up for improvement but we discussed your conspiracy theory before, I'm willing to explore the possibility but I don't see any clear cut evidence. In my view, America's spending power and the worlds banker the UK, have a huge influence on the financial market, no surprise they have less difficulty raising capital.

What surprises me in this discussion is that people blame bankers for trying to improve their tier one, eventhough its the government who demands it. Don't get me wrong, I fully support this demand but of course that affects the lending capacity of banks.
 

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Well, both countries are known to pay their debts, unlike a country like Italy who, before the euro, revalued its Lire every other year. I think the rating system is up for improvement but we discussed your conspiracy theory before, I'm willing to explore the possibility but I don't see any clear cut evidence. In my view, America's spending power and the worlds banker the UK, have a huge influence on the financial market, no surprise they have less difficulty raising capital.

I agree, the US has the "reserve currency" status, and that makes it easier for the US to have massive deficits and debt. But we are still rewarding the US for taking more and more debt... its 10 year yield has gone down to record levels while its debt (post WW2) has gone up and up, along with its deficit, and there is no plans what so ever to contain the problem.

However for the UK it is another matter. The UK has come near or out right defaulted on debt several times. It does not have a long track record of financial stability that many people think it has. It was bailed out by the IMF in the 1970s for example. And yet it has this false reputation of being a solid economy, when history proves otherwise. Personally I think it is because the UK claims to have founded the financial system we know today, despite it being the Dutch. Granted the yields have risen of late (considerably) but it is still no where near where I would expect it to be. And it is still lower than a country like Norway... the most solid state finances on the planet... come on.

Ratings and yields should be on facts and figures, not supposed historical fact and wishful thinking. Ratings are far too important in our society these days (regrettably) and have to be as accurate as possible on existing economic facts and future economic facts.. not historical (or supposed historical). As it stands now, it is not.


What surprises me in this discussion is that people blame bankers for trying to improve their tier one, eventhough its the government who demands it. Don't get me wrong, I fully support this demand but of course that affects the lending capacity of banks.
 

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-- The UK has come near or out right defaulted on debt several times. It does not have a long track record of financial stability that many people think it has. It was bailed out by the IMF in the 1970s for example. And yet it has this false reputation of being a solid economy, when history proves otherwise --

Do you have any other examples of near-defaulting, I'm interested.

I can think of crises - i.e. IMF in the 70's, Black Wednesday etc.
 

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If Britain has trouble with money (especially during Labour's pre-PC days), maybe the Government could make as much effort to spend wisely as it does being obsessive in its talk about cuts:


The Coalition is spending even more than tax-and-waste Labour - Telegraph

http://www.debatepolitics.com/europe/84449-express-britains-foreign-aid-bill-scandal.html

Name-changes create even more waste: The New ConDem coalition already wasting money

Enforcing broadband? I'd much rather cash be spent on enforcing higher educational standards: thinkbroadband :: Coalition Government announced broadband policy
 
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PeteEU

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Do you have any other examples of near-defaulting, I'm interested.

I can think of crises - i.e. IMF in the 70's, Black Wednesday etc.

Well since the present banking system is pretty new relatively speaking compared to the age of the UK/England, then near-defaulting before that is hard to quantify before the present banking system. Our way of banking is only 39 years old and in that period, the UK has near defaulted or been in serious trouble at least 2 times. The IMF in the 70s was a "gun to the head" moment for the UK and you were a whisker from defaulting. Problem the material out there rarely speaks of near misses, but more of hits. For example, it is damn hard to find material on the Danish crisis in the early 1980s... Denmark was like the UK in 1970s, a whisker from defaulting.

Now the ironic thing is that places like Greece and Spain have defaulted once or twice, but over 100 years ago and yet the media and "experts" talk about it like it was yesterday. In fact in Europe the only defaults the last 50 years have been former soviet bloc countries... The last time any defaulted or underwent restructuring in western Europe was Italy.. in 1940 (minus Greece last year of course). So in all this talk of sovereign debt crisis.. is more hype that reality if you ask me. No major nation has defaulted in the industrialized world since Italy in 1940.. unless we count the Russia as an "industrialized" country.. Russia did default in 1998.

As for out right defaulted (UK/England speaking), I admit we have to go back a long way, to before the Empire, but it has happened. English Kings were not the best book keepers out there :)...
 

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--The last time any defaulted or underwent restructuring in western Europe was Italy.. in 1940 (minus Greece last year of course). So in all this talk of sovereign debt crisis.. is more hype that reality if you ask me. No major nation has defaulted in the industrialized world since Italy in 1940..

That does however contrast with your previous picture - we have crises like everyone else. I'm not pretending the UK is perfect: it's not, but neither is it (anymore) about to go totally insolvent. We have periods of financial stability as well as periods of (self inflicted sometimes) instability - much like any other country.

-- As for out right defaulted (UK/England speaking), I admit we have to go back a long way, to before the Empire, but it has happened. English Kings were not the best book keepers out there :)...

That was my suspicion too. ;)
 

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That does however contrast with your previous picture - we have crises like everyone else. I'm not pretending the UK is perfect: it's not, but neither is it (anymore) about to go totally insolvent. We have periods of financial stability as well as periods of (self inflicted sometimes) instability - much like any other country.

And that is no different than say Denmark, Spain, Germany, France or any other European country.. and that is my point.

That was my suspicion too. ;)

And the same can be said for pretty much every western European country. Last time a major country defaulted was as I said, Italy in 1940 (war), Germany in the 1930s (war and global depression).. else we need to go back over 100 years easy. But if listened to the so called experts, especially on US and British news, half the countries in Europe have defaulted in the last decade pretty much... so why are the US and British experts and media talking up the US and UK constantly while talking down the rest?
 

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-- so why are the US and British experts and media talking up the US and UK constantly while talking down the rest?

I've not been aware of UK media people talking up the UK. In fact there was a major feature this weekend from Gary Indiana which showed a very different picture than one of glowing prosperity and growth. Of course, that's not the whole of the US - but you won't find images / scenes like that in many Western European nations anymore.
 

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I agree, the US has the "reserve currency" status, and that makes it easier for the US to have massive deficits and debt. But we are still rewarding the US for taking more and more debt... its 10 year yield has gone down to record levels while its debt (post WW2) has gone up and up, along with its deficit, and there is no plans what so ever to contain the problem.

I think we will see that change the coming decade. During the credit crisis and the recession, investors bought securities because they were relatively safe compared to stock, real estate and bank loans (at the time). Eventhough we see more euro and yen reserves after the crisis, these currencies are also unstable and not without debt, the dollar still is the worlds reserve currency and as long as americans buy chinese products and american securities, and the chinese keep buying american securities for their dollars in return, we will see the distortion you describe.

However for the UK it is another matter. The UK has come near or out right defaulted on debt several times. It does not have a long track record of financial stability that many people think it has. It was bailed out by the IMF in the 1970s for example. And yet it has this false reputation of being a solid economy, when history proves otherwise. Personally I think it is because the UK claims to have founded the financial system we know today, despite it being the Dutch. Granted the yields have risen of late (considerably) but it is still no where near where I would expect it to be. And it is still lower than a country like Norway... the most solid state finances on the planet... come on.
I can’t think of a logical reason for it, doesn’t Norway have a positive balance, do they even have debt? My point was that London is the financial heart of Europe, a position they took over from the dutch centuries ago. I don’t have an explanation for these ratings though, they don’t always make sense to me either. We spoke about Greece, Italy, Portugal and Spain earlier this year, I’m sure we still disagree on whether they got fair ratings or not.

Ratings and yields should be on facts and figures, not supposed historical fact and wishful thinking. Ratings are far too important in our society these days (regrettably) and have to be as accurate as possible on existing economic facts and future economic facts.. not historical (or supposed historical). As it stands now, it is not.
In general I agree but I also realise that economy doesn’t deal in absolute truths. What would you suggest to improve the accuracy of these ratings?
 

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I've not been aware of UK media people talking up the UK. In fact there was a major feature this weekend from Gary Indiana which showed a very different picture than one of glowing prosperity and growth. Of course, that's not the whole of the US - but you won't find images / scenes like that in many Western European nations anymore.

Yea saw that..... had seen such areas before and knew they existed. Pennsylvania in the old coal areas have similar cities just inhabited by white people.

As for UK media people.. no for the most part, since they are not allowed to be biased (Ofcom rules ftw), however the so called "experts" in the City do... sometimes they talk negative about the UK economy and then throw in "yea but in X country it is way worse" argument. Hate that.

The American media do it constantly, especially on CNBC. If I had an euro for each time one of their so called journalists or experts, said "but in Europe it is much worse", I would be a rich man. It was especially comical when someone from the CATO institute try to slam France on its "MASSIVE" unemployment, when in fact it was at the time (and still is I think) lower than the US. Or claim Europe was a hell hole on growth, when Europe had come out of recession officially (as pointed out earlier in the show) and the US was still at the time in recession.
 
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I think we will see that change the coming decade. During the credit crisis and the recession, investors bought securities because they were relatively safe compared to stock, real estate and bank loans (at the time). Eventhough we see more euro and yen reserves after the crisis, these currencies are also unstable and not without debt, the dollar still is the worlds reserve currency and as long as americans buy chinese products and american securities, and the chinese keep buying american securities for their dollars in return, we will see the distortion you describe.

I disagree fully. The US dollar is in decline and with in a decade or two it will be replaced by another reserve currency. It happened to sterling when a bigger player came on the market and the UK was weak. It will happen to the US. It might be the Chinese Yuan or the Euro or Yen, but it will be replaced sooner than later. And that is when the present debt load and deficit will come home to roost.

And you also hit the nail on the head in a way.. you claim that "as long as American's buy Chinese products".. but with what money? Real income is falling and has been falling for over a decade and the fact that American's are so heavily indebted means they can as they did during the last decade.. rely on re-mortgage of their homes to live off.

That is the problem, everyone in the US and UK financial markets expect the US to come back to its massive spending spree it has enjoyed for so long and frankly that is one hell of an assumption considering the scope of pain the average American has seen the last 3 years. And considering that many jobs are being moved overseas in the US, then where exactly in the short term will the income come from, so that American's can go on a spending spree?

We had this shock in Europe in the late 1970s and our "consumption" levels never really took off in the same way as the American's did, and hence we are in no way as dependent on "consumer spending" as the American's are for their economic growth. In many European countries (maybe not the UK), any bad news what so ever will get Europeans to stop spending and save. We are paranoid like that now.

I can’t think of a logical reason for it, doesn’t Norway have a positive balance, do they even have debt?

They have oil, and have had surplus for a very long time. They have the second biggest sovereign fund on the planet, who has been buying up now cheap stuff across the world (along with the Gulf countries). They have secured their peoples pension and lives for a minimum of 100 years so far. And then on the flip side, you have Japan with 200%+ debt vs GDP.. with a 10 year yield under 1%... But since most of that debt is domestic debt (as in owed to the tax payer) then it is not a problem. Not even stagflation over a decade dented the yield rate..

My point was that London is the financial heart of Europe, a position they took over from the dutch centuries ago.

I agree, and that is most likely one of the main reasons to be brutally honest and why successive British governments have defended the City tooth and nail. Without the City, the UK has no major industry to speak off (relatively speaking).

I don’t have an explanation for these ratings though, they don’t always make sense to me either. We spoke about Greece, Italy, Portugal and Spain earlier this year, I’m sure we still disagree on whether they got fair ratings or not.

Greece was fair, Spain and Portugal not. Ireland is not even fair now, way too low considering the deficit it has. Like it or not Spain even with 20% unemployment is going along about just as well as the UK .. but has almost double the yield... which ironically goes up and up when nearing a Spanish bund auction, and the plummets to around 4% and under after.. speculators anyone? I am not saying that the Spanish yield should be the same as the UK's or even semi close, but not at the double and even near triple lvl it was at once point. Spain is till in the top 10 world economies (nr. 9 last I looked).

In general I agree but I also realise that economy doesn’t deal in absolute truths. What would you suggest to improve the accuracy of these ratings?

Economy and finances is about absolute truths unless we are talking about forecasting. But ratings are not real forecasting instruments per say since they have failed at every major attempt so far.. sub-prime, Lehman and so on. hell they did not even pick up the Greece mess, and one of their biggest clients was involved in that.

As for improving the accuracy... nationalize all the ratings agencies, and make them fully independent of Wall Street and the financial industry. The main problem with them at them moment is they are first dominated by the Anglo-American sphere of thought, plus rely on income from the very financial institutions that use their ratings in their financial transactions.

For example, I find it highly troubling that Goldman Sachs pays all 3 ratings agencies millions a year and these rating's agencies downgrade say Greece (legit though) where Goldman Sachs helped a previous government hide the true debt, all in the while playing the other side of the fence also. In the end those few millions a year earned them billions. Who is not say that the ratings agencies gave the Greece rating an extra nudge or two for one of its clients? And if not Greece, pick any country or company that recently has been downgraded... companies like Goldman Sachs made millions if not billions on said downgrades.
 
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