From the Independent:
Chancellor George Osborne defended the Government's austerity package today after Britain was threatened with the loss of its AAA credit rating amid fears over weaker growth prospects and potential shocks from the eurozone crisis.
Ratings agency Moody's put the UK on “negative outlook” last night, increasing the chance of the country being stripped of its cherished status.
Shadow chancellor Ed Balls said the move was “a significant warning” and urged the Government to spark economic growth, but Mr Osborne said it was “a reality check for anyone who thinks Britain can duck confronting its debts”.
The Chancellor told BBC Radio 4's Today programme: “We can't waver in the path of dealing with our debts and here is yet another organisation warning Britain that if we spend or borrow too much we are going to lose our credit rating but, more importantly, what that leads to potentially is a loss of investor confidence in our economy.
It doesn't seem to matter how badly the UK economy gets, the Conservative government simply refuses to change course insisting austerity measures are the only way back to stability and growth.
Yes, debt is a problem and needs to be dealt with, but incessant government warnings about hyper inflation related to borrowing and spending are completely overblown. As Paul Krugman has pointed out over and over again, these fears are unfounded and do not conform to reality.
Will the UK government ever listen? It doesn't seem that way right now, but I'd bet a significant amount of money that they start to increase spending before calling another election. Because the truth is, Keynesian economics does conform to reality and the Tories will have to accept it if they want to get reelected.