When Neil's Mum found out that the 'O' in 'O Level' stood for ordinary she took out her hair-curlers, de-pinnied and marched round to his school, demanding to know why her son was considered 'ordinary'. Fair enough in PE and Art, two non-subjects at the opposite ends of the 'real boy scale', but something as serious and potentially life-changing as Geography and English Literature, absolutely not.
How can a simple letter have such an impact on the world of the being to whom it is attributed and the lives of the little worlds satelliting around it? Just imagine the power of the attributing being? Hmm, we rate you as a 'B'. Argue and you become a 'B-minus'. Keep talking, you become a 'C' and Ghana can invade you. But that is Moody's, an American financial services company, which ranks the creditworthiness of borrowers using a standardised ratings scale which measures expected investor loss in the event of default. A series of shiny tall glass buildings swarming with statisticians, actuaries and (dare we whisper it?) economists who stare at screens all day and make decisions about countries. And it is not just Moody's, there are two other such agencies; Fitch and Standard & Poor's.
It is important to you, this morning, as last night (Friday 17 October) Moody’s downgraded Britain’s credit status by one notch to Aa3 from Aa2. The little grey-suited people who came up with this rating, clustered together like the thin spindly kids in the gym as the vaulting benches are being dragged out, said they expected the public finances of the United Kingdom would worsen as a result of the pandemic, though it expected the overall debt burden to stabilise next year, leading it to drop the 'negative outlook' attached to the rating to one of 'stable'. That is very nice of them - but do they have any friends out of work and have they ever laughed so much they feared for their lives?
“Even if there is a trade deal between the UK and EU by the end of 2020, it will likely be narrow in scope, and therefore the UK’s exit from the EU will, in Moody’s view, continue to put downward pressure on private investment and economic growth,” the agency said. They clearly know more than all the Frosts, Barniers and Macrons put together, so why don't we put them in charge of ordering Covid-19 testing kits and do us all a double-whammy favour by shutting them up and getting the problem sorted?
Come on, NTI newsroom, this is all very serious and you should tell the nice people reading this about the potential ramifications of such a downgrade. The agencies’ decisions can have knock-on effects throughout the economy of the country they rate. The ability of Governments to borrow money has an impact on investors and companies, and companies pass on the cost of borrowing to their customers. There can be contagion effects of individual downgrades across global financial markets, via increases in equity market returns and the yield demanded by investors for sovereign debt. Also, some institutional investors (such as pension funds) are not allowed to hold debt with a credit rating of BB or below.
Starkly, a downgrade for either banks or Governments increases bank borrowing costs. This makes it more likely banks will need to be bailed out by the Government in the near future. This puts more pressure on the Government’s finances, which could lead to another credit rating downgrade; and so the merry-go-round turns.
There was only one Pret a Manger open in Westminster yesterday and 00 Sunak was in there nursing a specially made white chocolate mocha chatting to the International Monetary Fund (who went for a macchiato). The IMF were urging Rishi to protect our economy from further damage by increasing borrowing, making use of ultra-low interest rates offered to so-called 'safe haven' countries like the UK. Tucking into a piece of banana cake Rishi seemed uncertain:
"I think you'll find that the downgrade by the bastards at Moody's is likely to persuade Treasury officials that they need to be careful before agreeing to increase the deficit further, possibly triggering a further downgrade."
"True," the IMF came back, "but you've got to be in it to win it."
"Oh, I think we are in it," said our Rishi ruefully, "up to our necks in it, to the tune of about £300 billion." The IMF paled:
"You are still buying the coffee, right?"