Public spending cuts - reality bites

Standard & Poors recently warned that unless the next Government (of whatever party) adopts more ambitious plans to cut the UK budget deficit then it will remove Britain’s AAA status. Slightly more recently PIMCO, the world’s biggest bond house, publicly declared that it is selling some of its stock of UK government debt, gilts, and predicted that there was a 80pc chance that Britain has its top-notch rating downgraded soon. So it was a shock when Alistair Darling presented his/Gordon Brown's Pre Budget Report with spending hardly lower than previously indicated, do Labour really have so little idea of the true state of the economy?

Today I read in The Times that reality may have finally caught up with Gordon Brown as:

"Alistair Darling has warned that Britain faces its toughest spending cuts for 20 years if Labour continues in office.

The Chancellor, indicating a dramatic shift in his party’s election strategy, tells The Times today that severe spending restraints are “non-negotiable” if he is to bring down the £178 billion budget deficit. "

...

“The next spending review will be the toughest we have had for 20 years . . . to me, cutting the borrowing was never negotiable. Gordon accepts that, he knows that.” "

Of course this being a Labour government they still cannot bring themselves to be entirely honest with the public (my emphasis):

"Officials made plain that the Comprehensive Spending Review to which Mr Darling referred would happen after the election, although he indicated that more details would be spelt out then."

So does this mean Gordon Brown will have to row back on his diving line of "Tory Cuts" versus "Labour investment"? And if he does will the BBC take him to task for it? I think we all know the answers to those questions...

Meanwhile I learn that Neil Woodford the head of investment at Invesco Perpetual has this week said that there was a "high probability" of Britain losing its AAA credit rating. Any such loss of rating would most likely send the pound plunging and probably send Britain into a debt spiral - as the Treasury would be forced to pay greater interest rates on its debt, which in turn would push the deficit still higher, etc. etc. etc..


In the meantime I will be buying more gold, and reducing my exposure to Sterling.