The Rest of The World Is So Nervous: Moody’s strips U.K.’s Coveted AAA Rating, Chancellor Warned On Inflation, Euro Crisis Returns – In Italy, Spain And Cyprus, A ‘Steepening Downturn’ Across The Euro Area, And Berlusconi Is Coming Back!
February 24th, 2013
Moody’s strips U.K.’s coveted AAA rating
Moody’s announced on Friday night that it had cut the Government’s bond rating one notch from ‘Aaa’ – the highest possible level – to ‘Aa1’.
The move is a significant setback for Chancellor George Osborne, who has faced criticism that his strategy for dealing with UK’s huge debt burden is failing to deliver.
Moody’s pointed to “continuing weakness in the UK’s medium-term growth outlook, with a period of sluggish growth which [it] now expects will extend into the second half of the decade”.
The credit ratings agency also noted that the Government’s debt reduction programme faced significant “challenges” and that the UK’s huge debts are unlikely to “reverse before 2016?.
Chancellor warned on inflation as rating cut sparks new sterling fears
Inflation could rise further as an indirect consequence of Moody’s downgrade of the British economy on Friday, a former member of the Bank of England’s Monetary Policy Committee has warned.
Andrew Sentance, who served on the Bank’s rate-setting committee until May 2011, cautioned that the cut to the UK’s credit rating would add to the existing “downward pressures on sterling”.
The downgrade stripped the UK of its prize AAA credit rating amid worries about weak growth and rising debt. The rating was lowered one notch to AA1, with the outlook on the country’s debt improving to stable from negative. Sterling fell in the last half- hour of trading in New York on Friday night, dropping 0.6pc to $1.5163.
“This of itself won’t increase inflation,” Mr Sentance told The Sunday Telegraph. “But it will add to pressure on the pound, which has already fallen a long way in the space of six weeks – which is not going to help inflation.