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UK was not well placed for the recession – Moody’s

Contrary to the assurances of the Prime Minister, the UK was not well placed for a financial crisis of this magnitude says Moody’s rating agency.

Moody’s has reaffirmed the triple-A rating of the UK, even in the face of the dire economic predictions offered by the Chancellor in the Budget this week and also by the IMF at the start of the week.

The Prime Minister Gordon Brown has repeated assured the UK that it is was and is in a strong position to handle the economic downturn; claims that Tory leader David Cameron used last month to call the Prime Minister as a “complete phoney”.

Moody’s says: “The UK economy and public finances were not well positioned at the onset of the crisis, with relatively high structural deficits, high household indebtedness, and a significant degree of reliance on the housing and financial sectors for growth and employment.”

It predicts that GDP will continue to fall in 2009 to -4.1 per cent, and then bounce back slightly to just -0.4 per cent in 2010. It says a “skilled, flexible workforce” and “robust institutions and pragmatic policy-making” will be able to combat the “substantial structural deficits and large contingent liabilities” faced by the UK.

The ratings agency says the recession in the UK will not be deeper than any of the other recessions taking place in the Eurozone: “The UK economy benefits from the flexibility of the government’s balance sheet, in particular in the form of its support to the banking system. It also benefits from a pragmatic, if risky, monetary response in the form of the quantitative easing initiated by the Bank of England and from the sharp depreciation of the currency.”

It says: “The outlook for the UK government’s rating is stable. The pace of deterioration of public finances is considerable, but a comparatively low level of debt initially means that the UK is so far not an outlier among triple-A countries.”

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