What Moody’s warning says about Osborne’s Economy

In 18 months of coming to power, this Government have stalled growth, raised unemployment, and pitched a fight with our European trading partners. Today, Moody’s joined the chorus of groups, which includes the IMF and Labour, demanding a change in policy.

In the last month, Cameron and Osborne have sapped confidence from investors in the British economy and its companies. In Europe, Cameron used his veto, excluding Britain from influencing policy-making over the City and the wider economy. But it is in Britain where Moody’s sees the greater cause for concern. Cutting further and faster than ever, yet protesting they have a growth strategy, has been shown by one of Britain’s most supportive ratings agencies to be failing.

This incoherent and inconsistent rhetoric is not only costing Britain its ability to fight for its financial sector in Europe; it is costing Britain its reputation as a financial hub, and costing jobs.

Far from making Britain a safe haven from the storm, David Cameron’s fiscal policies at home and strategies  in Europe have seriously undermined the City’s confidence in this government, and by extension this country’s economy.

Moody’s raises concerns that Britain is very exposed to the euro and, yet, these last few weeks have seen Cameron relinquish autonomy and control over the Square Mile in Europe as well as jeopardise the City’s relationship with the European Union, its most significant trading partner.

Cameron’s recklessness has undermined investor confidence, rather than boosting it.  Sir Richard Lambert, former Director General of the CBI has said:

“The Government has not been…consistent and focussed when it comes to policies that support growth. It’s failed so far to articulate in big picture terms its vision of what the UK economy might become under its stewardship.”

And yet, Cameron and Osborne still try to argue that low Government bond yields show the strength of their leadership and direction. Yet, as Jonathan Portes, director of the National Institute of Economic and Social Research, has argued, these low interest rates show that their plan is failing to bring back growth, failing to bring back market confidence in UK companies, and fundamentally failing our economy.

It is now quite clear that Britain is no safe haven from the storm, as Osborne has argued. As bond yields have fallen, so have share prices, proving institutional concern for the state of the general economy and the Government’s ‘growth’ strategy. The Government promised inaction at home and in Europe and it has delivered.

Britain’s gilt yields might be falling and, given what Osborne says, you would expect money to pour in from Europe to this ‘safe haven’. Yet, the Euro, which, by all accounts, is nearing collapse, has barely moved against the pound, all the more significant when compared with the rise of the Yen.

Labour has long been arguing that the Government is failing the economy. Our stock market is stalling. Investors are shying away from British companies, driving Government yields lower as they have nowhere else to go.

In 2009, Labour took the necessary steps to stabilise the crisis, reinvesting in our economy, and the pound regained much of its weight and shares in banks rose. When Labour took the decision to recapitalise the banks, the effects were immediate. Confidence in the UK and its financial sector rebounded. The pound rebounded against the Dollar, the Yen, the Euro. Bank shares rose for the first time.

Yet since then, the exchange rate has barely changed, despite the mess that the eurozone finds itself in.

The Coalition is failing our financial sector, undermining confidence in our banks. While Labour began to bring back stability by mid-2009, this Government has squandered its inheritance, overseeing a period where banks’ share prices are falling to their lowest since the start of 2009.

Labour knows the importance of financial services for the UK economy, which contributes 10% of national GDP, not just in London, but in Edinburgh, Leeds, Manchester too. By investing in our banks and creating a strategy to boost market confidence, Labour had laid the foundation of a growth strategy. The Government has squandered this chance, selling Northern Rock at a loss, losing Britain’s influence in Europe, forcing a flight from the stock market; it still has time to rebuild the financial sector. This is why Labour is calling on the Government to detail a growth strategy, sit at the negotiating table in Europe and win back the confidence that it has lost.

Our recovery will be helped by Europe, but its foundation, as Moody’s has said, lies in the UK and this Government should start to lay this foundation by constructing a credible growth strategy.