Osborne pressed for action now to boost growth after downgrade

Business leaders in Yorkshire were divided over the likely impact of the downgrading of the credit rating on industry and the economy yesterday, which was dismissed by the Business Secretary as “largely symbolic”.

“In terms of the real economy there is no reason the downgrade should have any impact,” Vince Cable said, pointing to the US economy’s relatively strong growth compared with Europe last year following the loss of its AAA rating.

“These things do not necessarily affect the real economy but they reflect the fact that we are going through a very difficult time and we are trying to balance the need to get the deficit and the budget under control with the need to get back to economic growth,” he said.

He went on: “The rating agencies have a pretty bad record. They are a bit like tipsters. They get some things right and a lot of things not right. They are part of the background noise we have to take into account.”

Mr Cable also flatly ruled out deeper spending cuts, suggesting that kind of policy was coming from “right-wing ideologues”.

The Federation of European Employers has warned, however, that Moody’s decision could have a profound impact on the City of London as one of the world’s top financial centres.

Secretary-general Robin Charter said: “The downgrading of the UK’s credit status is a blow for the UK as a leading financial centre and the UK balance of payments is so reliant on its financial services that even a small loss in trading income could affect the value of sterling and have a major impact on GDP.”

While some urged George Osborne to stay the course in the run-up to next month’s critical budget, others have warned the downgrading to an AA1 status was a sign his debt-cutting mission was hampering growth in the county.

Suzy Brain England, Yorkshire chair of the Institute of Directors, said the lowering of the rating by a notch was nothing to be “too disheartened” about. “There is still strong performance in many sectors in the UK and in Yorkshire, not least in manufacturing,” she said. “The key question is whether it will affect investment. Those who seek to invest will measure each case on its merits.”

But her predecessor, Margaret Wood, owner of Wakefield-based engineering firm ICW (UK) Ltd, said the Government was losing the confidence of business. “They had the support to put us back on track but they are failing. Business is working with one hand tied behind its back.

“If the Government wants the economy to grow they have to start investing in infrastructure in the UK, and certainly Yorkshire.”

Explaining its decision on Friday, ratings agency Moody’s pointed to “subdued” growth prospects and a “high and rising debt burden” weighing on the economy. It now expects “sluggish growth” to “extend into the second half of the decade”.

Henry Shirman, managing director of Rotherham-based steel group MTL, said the Chancellor was correct in refusing to deviate from his debt-cutting path.

“There are certainly some glimmers of hope on the horizon in 2014/15,” he said. “If the Government stays its course and brings the debt down, the economy will be stronger.”

Economist Howard Archer pointed out were very few countries left with AAA ratings from all of the agencies.

But he added: “The loss of the AAA rating certainly puts pressure on Mr Osborne to come up with more initiatives in the Budget to try and boost growth.”