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UK’s AAA rating move didn’t hit

Gilt yields were largely unaffected by Moody’s decision to put the UK’s AAA credit rating on a negative outlook last month, say Bank of England governor Mervyn King.

Giving evidence to the Treasury select committee last week, King said agencies provide valuable economic assessments but warned “we should not be slaves” to them. He said: “What they say is not as important as whether people are prepared to lend to the Government. The announcement from Moody’s that it had put Britain on a negative outlook had almost no effect on gilt yields.”

Yields on 10-year gilts on February 13, the day before the downgrade, were 2.2 per cent. That fell slightly to 2.17 per cent on February 14 and 2.15 per cent on February 15, before rising to 2.26 per cent by February 17.

Monetary policy committee external member Adam Posen said economic problems make it more likely ratings will be cut. But he added: “I do not view sovereign ratings as the be all and end all of our market credibility.”

Last month, Moody’s put France and Austria’s AAA credit rating on a negative outlook, and downgraded the ratings of Italy from A3 to A2 and Spain from A3 to A1.

It said the move was due to continued uncertainty over the institutional reform of the eurozone’s fiscal and macroeconomic framework, as well as concerns about the resources to combat the crisis.

Hargreaves Lansdown pensions analysts Laith Khalaf says: “Rating agencies do not tell markets anything they do not know.”

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