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UK loses AAA credit rating from Moody’s

London UK Britain Flags Street 480

Moody’s has downgraded the UK’s credit rating from AAA to Aa1 based on continuing weakness in the medium-term outlook for economic growth.

The ratings agency made the announcement on Friday, citing “sluggish” economic growth made worse by both macro economic factors and the ongoing domestic public- and private-sector deleveraging process.

It warns this growth environment poses a threat to the Government’s fiscal consolidation efforts. Moody’s now expects the UK’s gross general government debt level to peak at just over 96 per cent of GDP in 2016.

Moody’s changed the outlook for the UK’s rating to negative in February 2012 citing concerns over the pace of fiscal consolidation due to materially weaker growth prospects.

The ratings agency says: “After it was elected in 2010, the Government outlined a fiscal consolidation programme that would run through this parliament’s five-year term and place the net public-sector debt-to-GDP ratio on a declining trajectory by the 2015-16 financial year. Now, however, the Government has announced that fiscal consolidation will extend into the next parliament, which necessarily makes their implementation less certain.”

While Moody’s says the UK’s debt servicing capacity remains very strong, these two factors have impaired its ability to “quickly reverse the impact of adverse economic or financial shocks” and the UK can no longer be said to have the same resilience as other AAA rated economies.

Legal & General Mortgage Club managing director Ben Thompson says: “This downgrade – while embarrassing and untimely – will not have come as a shock. Markets will have expected this to a certain degree and there should not be much disruption to the cost of funding. Moreover FLS and other measures implemented have ensured that cheap funds are at the ready, so mortgage pricing should continue to remain low.

“In fact, if anything, competition amongst lenders to attract certain borrowers will increase, so we expect to see further record lows such as the five year fixed rate just announced by the Yorkshire Building Society.”

The Federation of European Employers secretary-general Robin Chater says: “The downgrading of the UK’s credit status is a blow for the UK as a leading financial centre and the UK balance of payments is so reliant on its financial services that even a small loss in trading income could affect the value of Sterling and have a major impact on GDP.

“Regaining international confidence by further government spending cuts is going to take far too long to affect the economic fundamentals and could harm public confidence if it reduced the quality of public services “

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Speding cuts are such a lazy “solution”. Any number of alternatives exist; better tax regime, increased employment solutions, better income equality, increased GDP, increased household disposable income via lowering energy and housing costs etc. UK has always had great thought leadership, no reason why we couldn’t have London become part silicon valley, part banking.

  2. IMHO, CJ @ 9:49 is on the money with those suggestions but nothing sensible ever seem to get through the accursed Whitehall machine intact.

    I suspect we in England will have to literally be on the very edge of disaster before somebody is brave enough to step forward and slaughter the ‘enemy within’ at Whitehall, to get England going again.

    Meanwhile, back in Fantasy Land, somebody, somewhere, really believes that in 2016, the annual deficit will have vanished completely and the country will be generating an annual surplus.

    When it is stated thus, you can see how unrealistic that target is, looking out from here.

    They will do what they always end up doing, giving the currency (pound) a good dicking … i.e. debase it … a lot.

    Well, it is some sort of solution.

  3. Would that be the same Moody’s who rated AIG AAA and Lehman Bros AA just before they hit the rocks?

  4. The three runners and riders are :

    a) spending cuts

    b) economic growth

    c) printing money (sometimes dressed up as ‘QE’)

    No prizes for guessing which runner is leading the field, by a country mile.

  5. When you can clearly see what is happening then it is foolish to just ignore it and hope that it goes away.

    So, I just heard a short piece from Jim Rogers, a long-time investment partner with George Soros, on the radio and he said that apart from countries like Australia, Canada, China, Sweden and Singapore, everybody else is debasing their currencies.

    The USA will get away with it because some 40% of the world reserve currency is held as US dollars and they have really got going with fracking, which is an economic game-changer.

    Back here in the land-of-nod, the Coalition (and Miliband/Balls), keep trotting out the same tired stale old rhetoric.

    That politics is dead but plods on in England like a zombie, as per the economy.

    If only the people in England took more interest in politics then we would get fresh people with the energy, new ideas and enthusiasm to get us going again.

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