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Markets and managers shrug off UK rating downgrade

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Moody’s Investors Service stripped the UK of its coveted AAA credit rating last week but the move has been shrugged off by commentators as being of little surprise.

The credit ratings agency cut the country’s government bond rating by one notch to Aa1 after citing the weak medium-term growth outlook, the challenges this creates for the fiscal consolidation programme and a “deterioration” in the shock-absorption capacity of the Government’s balance sheet.

In the financial markets, sterling dropped in trading in Asia as investors reacted to the news. The pound reached a 31-month low against the dollar and a 16-month low against the euro.

However, the equity market appeared to shrug off the downgrade in early trading on Monday.

Liontrust Macro Equity Income fund co-manager Stephen Bailey says: “It has come as no surprise that Moody’s has stripped the UK of its triple A credit rating, although the execution of this downgrade appears to be rather late, in our opinion.” managing director Brian Dennehy adds: “For investors, the downgrade will have no lasting impact on the UK stockmarket. The recent weakness of sterling is a trend which I believe will persist for a year or two, which creates opportunities for UK investors.”


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