Moody’s puts UK on credit watch
MOODY’S last night threatened the UK’s coveted triple-A credit rating by moving the country to a negative outlook.
This means the UK now has a one in three chance of a downgrade in the next 12 to 18 months.
The ratings agency blamed its actions on “the increased uncertainty regarding the pace of fiscal consolidation in the UK” due to “materially weaker growth prospects”.
It also warned that economic headwinds could jeopardise the government’s goal of cutting the debt to GDP ratio, which looks set to peak at 95 per cent in 2014 or 2015 – higher and later than other countries with a top rating.
The agency said that “the high risk of further shocks” in the fragile Eurozone also put the UK’s debt reduction plans at risk, given its trade and financial links.
Moody’s verdict is a significant blow for chancellor George Osborne, who promised in his 2010 manifesto to safeguard Britain’s gold-plated rating through the coalition’s austerity plans.
Osborne said last night: “This is proof that, in the current global situation, Britain cannot waiver from dealing with its debts.”
The chancellor claimed that his austerity measures were the only thing protecting Britain from an immediate downgrade, saying “this is a reality check for anyone who thinks Britain can duck confronting its debts”.
Indeed, Moody’s said the government’s move to cut spending more quickly last year was a reason for keeping Britain’s top rating. It also said the UK’s low refinancing risk and relatively strong banking sector work in our favour.
Austria and France’s triple-A credit ratings were also put on negative outlook by the agency yesterday.
Moody’s also lowered the ratings of Italy, Portugal, Slovakia, Slovenia and Malta by one notch and slashed Spain’s sovereign rating by two notches from A1 to A3.
The outlook on the Bank of England’s triple-A debt rating was also downgraded to negative, in parallel with the UK.
However, Moody’s said the European Financial Stability Facility (EFSF), the single currency’s bailout fund, has not been downgraded, despite it being previously linked to Eurozone sovereigns’ own ratings.
Moody’s left the triple-A ratings of Denmark, Finland, Germany, Luxembourg, Netherlands and Sweden unchanged and also left Belgium, Estonia, and Ireland’s ratings untouched.
The euro and sterling fell against the dollar after the news last night.