Moody's downgrades UK's government bond rating to Aa1 from Aaa; outlook is now stable
London, 22 February 2013 -- Moody's Investors Service has today downgraded the domestic- and foreign-currency government bond ratings of the United Kingdom by one notch to Aa1 from Aaa. The outlook on the ratings is now stable. The key interrelated drivers of today's action are:
1. The continuing weakness in the UK's medium-term growth outlook, with a period of sluggish growth which Moody's now expects will extend into the second half of the decade;
2. The challenges that subdued medium-term growth prospects pose to the government's fiscal consolidation programme, which will now extend well into the next parliament;
3. And, as a consequence of the UK's high and rising debt burden, a deterioration in the shock-absorption capacity of the government's balance sheet, which is unlikely to reverse before 2016.
The Chancellor George Osborne released the following statement after the UK lost its AAA credit rating with agency Moody's:
Tonight we have a stark reminder of the debt problems facing our country - and the clearest possible warning to anyone who thinks we can run away from dealing with those problems.
Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it.
We will go on delivering the plan that has cut the deficit by a quarter, and given us record low interest rates and record numbers of jobs.
As the rating agency says, Britain faces huge challenges at home from the debts built up over many many years, and it is made no easier by the very weak economic situation in Europe.
Crucially for families and businesses, they say that ‘the UK's creditworthiness remains extremely high’ thanks in part to a ‘strong track record of fiscal consolidation’ and our ‘political will’.
They also make it absolutely clear that they could downgrade the UK’s credit rating further in the event of ‘reduced political commitment to fiscal consolidation’.
We are not going to run away from our problems, we are going to overcome them.
– George Osborne