Once Britain loses its AAA rating, the coalition is likely to break down

The government's key economic message has been that it is taking tough decisions to keep the confidence of the bond markets. A cut in our triple-A rating could blow that out of the water, and the coalition may not be able to take the strain, says Matthew Lynn.

How much longer can Britain remain AAA-rated? America isn't anymore, neither are Japan and France. It seems impossible that Britain can remain in the small group of most credit-worthy nations for much longer. The economy is stuck in recession and shows little sign of recovery. Tax receipts are falling short of expectations and cuts in public spending are slow to materialise. If that isn't a recipe for a ratings cut, it is hard to know what is.

In normal circumstances, Britain might be able to shrug that off. Losing triple-A status didn't make much difference to America or Japan. But David Cameron's coalition government has staked its credibility on preserving the rating and with it the confidence of the bond markets. Once this is gone, the coalition could easily fall apart. The markets will support double-A rated countries with stable, secure governments. It is much less likely that they will support double-A rated countries facing political chaos.

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Matthew Lynn

Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years. 

He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.