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Fidelity urges gov’t to ease pace of austerity after AAA loss

by Daniel Grote on Feb 25, 2013 at 08:01

Fidelity urges gov’t to ease pace of austerity after AAA loss

Fidelity Worldwide Investment has urged the government to ease the pace of austerity after the UK’s loss of its prized triple-A credit rating on Friday night.

Rating agency Moody’s on Friday downgraded the UK from AAA to AA1, citing ‘continuing weakness in the UK’s medium-term growth outlook’ and concerns over debt levels.

Trevor Greetham (pictured), Fidelity asset allocation director, said ‘inflexible allocation of front-loaded austerity’ was in part to blame for the downgrade. ‘Government, consumers and the banking system cannot all attempt to deleverage against a weak global backdrop without damaging the economy,’ he said.

Sovereign debt analyst Tristan Cooper said the government should respond by easing the pace of fiscal consolidation, together with further quantitative easing. ‘The aim would be to boost growth a bit before the 2015 election,’ he said. ‘They won’t be too concerned by a further decline in sterling’.

Fixed income global chief investment officer Andrew Wells added that the downgrade had been priced in by the markets. ‘The UK’s downgrade from triple-A is very much priced-in and anticipated by professional investors,’ he said. ‘Changing debt-to-GDP ratios are likely to see more events like this in 2013 from markets traditionally perceived as “high quality”.’

13 comments so far. Why not have your say?

Sam De Zoysa

Feb 25, 2013 at 08:31

It boils my blood to continually hear running an 8% deficit described as austerity. It's not. Cutting public sector pay by 25% as they are doing in Ireland is austerity, reducing pensions in payment as they have done in Greece is austerity. What we have here is a slight slowing in the pace of the increase in public spending.

From 2000 to 2008 we saw what happens when goverments spend what they don't have. We now have to deal with the result.

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Mobile via mobile

Feb 25, 2013 at 09:54

Well said Sam. We have not implemented any austerity measures in the truest sense. All we have done is printed money and given it to the banks whom have propped themselves up (for the debt to be dealt with by the next generation).

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Mark Cooper

Feb 25, 2013 at 09:57

Sam is spot on above.

What austerity? All we have done is go downhill at slightly less gradient since 2010.

The choice still seems pretty stark to me, either start cutting Public Sector and Social costs significantly whilst boosting the Private sector (who pay for it all) OR wait for the IMF to arrive with an axe.

I cannot believe Fidelity spout these views other than through self-interest.

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A Childs View

Feb 25, 2013 at 11:16

Spot on comments above. I'm left leaning but God forbid Miliband and Balls get in to drag us down further. Coalition Govt has the right policy. Increased Global demand will spark recovery, not Govt spending money we haven't got.

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Keith Cobby

Feb 25, 2013 at 11:48

Unless people have more money in their pockets the economy cannot grow. If you accept that people have borrowed as much as they can, the only thing left to try are substantial tax cuts and tax simplification. This would mean larger cuts in Government spending. All the Tories are doing is kicking the can further down the road. That road points to Greece.

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Geoff Downs

Feb 25, 2013 at 11:50

A Childs View,

I'm not for more spending, that would be crazy.

When you say though the Coalition Government has the right policy, could you spell out what that policy is?

Seems to me they are kicking the can down the road, or perhaps there is no solution, other than for bankers and politicians to stop trying to manipulate the markets and economy.

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Mark Cooper

Feb 25, 2013 at 12:07

@Geoff

George Osborne has entirely the right ideas to rebalance our economy - but not the mandate to to so. The Lib-Dems amount to Osborne driving the economy with the handbrake on.

The mistake IMHO was David Cameron not going back to the country after 6 months, having averted imminent meltdown, to ask for a proper mandate to change matters permanently with a majority Tory Government.

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Jonathan Kirby

Feb 25, 2013 at 12:25

The downgrade is because of weak growth.

The weak growth is because the economy is being stifled.

Money can be spent (or spending brought forward) on worthwhile long term projects to try and kick start growth without doing any real harm.

If the economy grows and debts simply remain the same, the proportion of GDP becomes less.

Bernanke is doing a better job in USA by doing just this and he is the ultimate student of the great depression.

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Geoff Downs

Feb 25, 2013 at 13:16

Mark,

It would be interesting to know what percentage of the UK population receives some form of payment from the Government. I guess it would be very high.

No one would disagree, I hope, that Government spending is out of control and therefore to call for more spending would be absurd.

We are then left with austerity.Would cutting spending reduce the debt? Would the electorate accept it anyway?

What about cutting regulation and saving business costs?

We have to find new ideas on how to solve this mess, after all it is the old way of thinking that has caused the mess in the first place.

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madmitch

Feb 25, 2013 at 13:37

Geoff is right, the old way of thinking was a major factor in creating the mess, but worse still is the old way of thinking is preventing any real chance of getting us out of it.

Poeple may not think that what we have curently is anywhere near austerity, but we are on that track, and a policy that is geared to create some fiscal control will very quickly become real austerity measures if we are unable to achieve some degree of growth.

But unfortunately there are things that are contributing to the lack of growth or consumer spending that are simply beyond any government.

The utility companies have been hoovering up what disposable income many households may well have had, and they will continue to do so, this totally negates any effort government makes to put a couple of pounds back into individuals pockets.

Those who are being hit the hardest (the low waged) by the situation we find ourselves in are actually the people we need to be able to spend to get any growth in consumer spending, but they find themselves under much more pressure than they ever have before with wages falling and a greater dependance on employment related benefits to get by.

I think we continually focus on the wrong sections of society, those who have a reasonable salary are probably still spending what they may have spent over recent years, but the lower regions of the income scale simply have nothing to contribute.

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Keith Cobby

Feb 25, 2013 at 13:52

I agree with Mark Cooper about Cameron going back to the country after 6 months. All his subsequent problems follow this first error when forming a coalition. At the end of the Parliament all he will have to show will be hundreds of billions of extra debt. I am convinced that Labour will follow this same path because they will have even more difficulty cutting expenditure.

People in Singapore, Hong Kong and Beijing must be laughing at us. We have had our chance and blown it. I hope you all enjoyed the ride while it lasted.

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A Childs View

Feb 25, 2013 at 13:54

@ Geoff - the Coalition's policies are preferable to Miliband / Balls' mantra of 'less fast, less deep' but I think I agree with your fundamental point that, ultimately, Govt policy won't make much difference in any event. Only a sustained period of increased Global demand could see things improve. That said, debt levels across the developed economies are at unprecedented levels and there are real questions about whether the model is broken for good.

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Geoff Downs

Feb 25, 2013 at 15:03

Someone has commented that Bernanke is doing a better job in the US.

In reality Bernanke is doing what the BOE is doing i.e. QE.

The difference in America is that Obama has been using stimulus.

To increase spending when you are 16.5 trillion dollars in debt, seems a little crazy.

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