Is it rate cut time again?
As the club of triple-A countries is getting more and more exclusive, after the US got kicked out last year and France this year, the unfolding catastrophe in the euro zone and the upcoming US debt ceiling fiasco round 2 could be ringing the bell of danger for the UK and the US (again). After the US debt ceiling fiasco round 1, some 13 months ago, S&P had the guts to downgrade the US. Moody’s did not. 13 months later and after a deterioration of the US debt/GBP by 8% Moody’s is now warning that should the (inevitable) deterioration of the US credit profile continue, it will most likely cut the US. Whether this is enough of a threat to make the Congress act, we will find out soon. Back in Europe, UK’s own economy is at a dire state with almost no growth and the imminent danger of falling back into full scale recession. Considering the instability of the government’s finances, one should not expect the Eurozone debt crisis to continue to distract the attention from it for too long. A potential rate cut could threaten Cameron’s coalition itself also causing a political chaos. When/if that time comes, investors wouldn’t like to own sterling, UK bonds or equities.
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