Just I have feared for months – and repeated first thing this morning: the pound and government bonds have been on the slide again. Today the pound has fallen below $1.50. The price for the government to borrow for ten years is now 4.1%, compared with the 3% when the problems intensified.
That’s the market’s verdict on what is going on. It’s making us all poorer. It is a warning to the government that the deficit is too big and it will undermine our economy more if left to run out of control.
As I keep explaining to journalists who ask me what is the importance of the AAA rating, it’s all a question of how much taxpayers have to pay in interest to be able to borrow for more government spending. The UK already has a different kind of AAA rating from Germany’s – we pay more to borrow. What matters is the interest rates paid, whether or not the rating agencies have adjusted, and whether they adjust before or after the market movements. So far the markets are making up their own mind regardless of the rating agencies.