The recent downgrading of the UK by Moodys from it’s AAA credit rating will certainly create problems for the Government.
It will make little difference to the UK financially. The UK’s financial position is well known and money markets will have been building this into prices for some time. Similar downgrades in the US and France have not made a real difference to their borrowing costs.
However, the Chancellor and the Government have had their credibility damaged. The perception of lost credibility is very dangerous, and once lost is hard to get back. In September 1992, just months after a remarkable election victory, Black Wednesday damaged the Major Government permanently.
George Osborne was already looking in a poor position, with his Austerity programme being stretch way beyond the period promised in 2010. Growth has stalled badly.
‘It’s the economy stupid’ is the political reality. It sums the fact that a Government need not be that popular, if the public feel that their jobs and economic future looks secure with them. Analysis of YouGov data since 2010 on this very issue paints the Government in a poor position. YouGov run a tracking poll that asks respondents which party is best for the economy in general. In June 2010 the Conservatives topped the poll with 37% vs Labour’s 26%. However, the poll in February 2013 showed a fall down to 27%. The data is plotted below:
The same data has been plotted on a CUSUM chart. This essentially shows the trends beneath the noise:
What is clear is that the Conservatives have been in free fall since around March 2012. This is a reference to the ‘omnishambles’ budget, and they have not recovered since. What is also noticeable is the fact the Labour has not felt any benefit, merely moving from 26% in June 2010 to 28% in February 2013.
The notable beneficiary of this has been ‘None’, moving from 7% to 13%. Quite simply increasing numbers of people feel that no party offers any prospect of improving the economy. They have lost faith in the Conservatives, but don’t feel Labour offers anything better. This finding is demonstrated by the correlation between the Conservative figure and the none figure (-0.75). The correlation of the Conservative to the Labour figure is a much worse -0.29.
The outlook for the UK economy is currently poor for the next few years. There looks to be no prospect of a change in economic fortune that would restore credibility back to the Conservatives. Our main trading partners in Europe are suffering very badly, and the overall picture is one of bouncing along the bottom of a long period of low or no growth.
Labour does have a open goal here, if they can have faith in plan not based on Austerity, but one of serious and sustained investment. The last few months has seen some speeches where Ed Miliband has begun to articulate an alternative, yet this embryonic economic plan needs much more flesh and bone. This plan cannot be Austerity-lite, but something different. The price of not creating and articulating this vision could be to enter the next election giving the Conservatives a chance it simply does not deserve.
Labour failing to beat the Conservatives in 2015 would be unforgivable.