Credit downgrade: UK `vindicated` by S&P decision
Baku, August 6 (AZERTAC). Britain`s austerity measures have been "vindicated" by the decision by Standard & Poor`s to reduce the US`s AAA rating, Downing Street sources say.
The government says the UK`s AAA credit rating has been preserved, but a change would put it "back in the firing line".
A Treasury source said that "economic turbulences" showed the need to stick with the current economic policies.
But Labour said the government had gone too far, too fast and its policies had knocked confidence and choked recovery.
Business Secretary Vince Cable acknowledged the crisis could affect Brtiain and said UK banks needed to be "absolutely secure".
On Friday, Standard & Poor`s downgraded the AAA rating for the US for the first time, citing budget deficit concerns.
Correspondents say the downgrade could erode investors` confidence in the world`s largest economy.
Asked how the US downgrade reflected on Britain, the Treasury source told the BBC: "When this government came to power Britain`s AAA credit rating was on negative outlook from Standard & Poor`s.
"Thanks to the decisions we have taken to deal with Britain`s debts and support a sustainable recovery our credit rating has been reaffirmed."
Downing Street says there is no "Plan B" alternative to austerity measures.
Loss of confidence
BBC business editor Robert Peston says credit ratings agencies want countries with AAA ratings to keep a declining trend of debt in relation to gross domestic product, which is why the UK has kept its rating.
But he says the downgrading of the US rating shows if the UK`s forecasts change its rating could also be reassessed.
On Friday, European stock markets continued to fall, with investors worried about the eurozone debt crisis and the weak US economy.
It came as fears over the ability of governments to pay their debts - which have led to Greece, the Irish Republic and Portugal already being bailed out - spread to Spain and Italy.
Mr Cable acknowledged the eurozone countries were Britain`s trading partners and said the debt crisis could affect Britain "either through trade or through the banking system and derivatives".
Mr Cable told BBC News stock market falls were unlikely to bring about a credit crunch like the one experienced in 2008.
"We`re on the edge of this crisis because it isn`t - at least at this stage - about banks, it`s a crisis about sovereign debt, the debts of governments, and in our country we`ve addressed the issue of our debt and our public sector deficit."
Mr Cable said the markets had confidence in the British government`s actions but warned against complacency.
"If the banking system were to be caught up in this crisis we need to make sure they`re absolutely secure. They are better placed than they were three years ago, they`ve got better capital and lessons have been learned from that previous crisis."
Mr Cable said the government had been doing what it needed to to produce stability in Britain.
"It is a combination of having financial stability, getting our deficit under control - we`ve taken tough decisions to ensure that happens - but at the same time to work on measures that support growth. "
Undermining confidence
Shadow chancellor Ed Balls said it was absurd to claim Britain was a safe haven.
"By trying to go too far and too fast, confidence has been knocked and last year`s recovery has been choked off. Our economy has barely grown for nine months and borrowing is now set to be £46bn higher than planned," he said.
Mr Balls added that the report by Standard & Poor`s on the US showed that political consensus was needed on budget deficit plans for them to be regarded as credible.
He said Britain needed "leadership from David Cameron and George Osborne on these global issues - and a proper plan for growth in Britain too".
BBC political correspondent Robin Brant says the eurozone crisis has interrupted the holidays of the prime minister and chancellor.
"Both are in touch from abroad as the government co-ordinates its response, and tries to show that the people at the top are still in control," our correspondent said.
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