Why the UK’s credit rating cut could be a good thing

The fact that Moody’s slashed its rating of the UK government from a perfect AAA to the lesser designation of Aa1 on Feb. 22 could push UK officials to focus less on austerity and more on growth. “There is no question that this will be a big political blow for Cameron, Osborne and the Conservative Party, who largely staked their election prospects on implementing the fiscal measures required to ensure that the UK kept its triple-A rating,” writes economist Megan Greene. On the same day the UK was downgraded, EU officials also forecast another contraction of the euro zone economy this year. Given that around 40% of UK exports go to the euro area, the British economy needs domestic demand to help it recover, Greene says. The government might have to reconsider its priorities before releasing its next budget on March 20.