Afternoon:
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Standard & Poor's experienced a backlash today after it threatened to cut Britain's AAA credit rating.
The Organisation for Economic Co-operation and Development spearheaded an extraordinary attack on S&P's “inexplicable” behaviour.
At the same time the pound surged back against the dollar amid speculation that it could be the US, rather than Britain, which gets its credit rating hammered.
S&P yesterday stunned the financial markets by downgrading its view of Britain's economy from “stable” to “negative” and threatened to cut the country's AAA status.
The pound fell sharply until speculation overnight that the US could be next in line for the S&P treatment caused it to turn, surging 2.04 cents this afternoon to $1.5924. The OECD attacked S&P and fellow rating agencies, saying they lacked credibility and prestige — a common view after they failed to spot the timebombs which triggered the current banking crisis. OECD secretary-general Angel Gurria said: “To me, it's inexplicable they want to cut the UK rating and that people are now talking about them cutting the rating of the US. Credit rating companies are evaluating governments' policies rather than a country's ability to pay.”
Gurria also condemned as “senseless” S&P's previous move to downgrade Spain's rating from AAA to AA+.
Professor Peter Spencer, chief economic adviser to the highly regarded Ernst & Young Item Club, added: “They completely missed the financial crisis and are trying to regain some credibility. But at the end of the day, when the next problem occurs, they'll be asleep at the wheel again.”
He said investors would most likely ignore S&P's warnings.
Stung by the fears about a US downgrade, Treasury secretary Tim Geithner this morning moved to shore up confidence today by pledging to cut the budget deficit to sustainable levels “over the medium term”.
