Moody's strips UK of coveted triple-A debt rating

Fri Feb 22, 2013 6:44pm EST
 

By Daniel Bases and David Milliken

NEW YORK/LONDON (Reuters) - Britain suffered its first ever sovereign ratings downgrade from a major agency on Friday, after Moody's stripped the country of its coveted top-notch triple-A rating, dealing a major blow to finance minister George Osborne.

Moody's cut Britain's rating by one notch to Aa1 from Aaa, with a stable outlook, blaming weak prospects for Britain's economy over the coming years which have thrown the government's deficit reduction strategy off course.

Austerity has been the watch word for Osborne's fiscal policy since his Conservative-led coalition came to power in 2010 after an election in which he vowed to defend Britain's triple-A rating, which keeps down borrowing costs.

But weak growth - which the opposition Labour Party blames partly on too much austerity - has pushed the government's goal of largely eliminating the budget deficit by 2015 at least two years off track.

Many in financial markets had expected at least one major agency to downgrade Britain this year.

Following the release of January public finances data on Thursday, the government's fiscal watchdog said the government may struggle to reduce borrowing at all during the current fiscal year, which finishes at the end of March.

Britain now joins the United States and France in having lost its triple-A rating from at least one major agency, having held the top-notch rating from Moody's and S&P since 1978, and from Fitch Ratings since 1994.

Moody's said that despite considerable structural economic strengths, Britain's growth is expected to be sluggish due to a combination of weaker global economic activity and a drag "from the ongoing domestic public and private-sector de-leveraging process."   Continued...

 
A Moody's sign is displayed on 7 World Trade Center, the company's corporate headquarters in New York, February 6, 2013. REUTERS/Brendan McDermid