THE UK is not immune to the sovereign debt crisis and may face a downgrade if no policies emerge soon to stabilise markets, credit ratings agency Moody’s warned last night.
Although the UK’s triple-A rating is currently viewed as stable, the “formidable and rising challenges” of weak growth prospects and Eurozone worries mean the country’s deficit reduction plan could be knocked off track.
Such a ratings downgrade could push up the UK’s borrowing costs, making it harder to reduce the deficit.
However, Moody’s did praise the Bank of England for its “flexibility in developing responses to economic and financial shocks.”
The agency also said the top rating depends on whether George Osborne’s (pictured right) Treasury “will stay on track with its fiscal consolidation programme” in the coming years.
Rival agency Fitch published its sovereign review and outlook yesterday, stressing the rapid decline in the Eurozone over the last six months and expressing concern at the lack of political progress.
The agency believes “a comprehensive solution to the Eurozone sovereign debt crisis is technically and politically beyond reach” – a situation which has not altered as a result of recent summits.
Fitch also confirmed that a downgrade of France would lead to the European Financial Stability Facility losing its triple-A status, as France is a key guarantor of the bailout fund.
The head of France’s security regulator, Jean-Pierre Jouyet, said of the country’s top rating yesterday: “Keeping it would need a miracle, but I want to believe it can happen.”