Britain ‘at risk of losing its gold-plated AAA credit rating’ because of Eurozone crisis and poor growth’

| February 14, 2012 | 0 Comments

  • UK put on ‘negative outlook’ and has one in three change of downgrade in next 18 months
  • But good news as Credit rating agency back George Osborne’s austerity drive
  • Italy, Portugal and Spain all have ratings downgraded

By
Tim Shipman

Last updated at 1:35 AM on 14th February 2012


Downgrade: George Osborne's austerity programme was backed last night by the credit-rating agency

Downgrade: George Osborne’s austerity programme was backed last night by the credit-rating agency

Britain risks losing its gold plated AAA credit rating because of the Eurozone crisis and poor economic growth, one of the world’s largest rating agencies warned last night.

Moody’s announced that it was placing the UK on a ‘negative outlook’ as it moved to downgrade the prospects of nine European countries.

They slashed the ratings of six countries and warned that Britain, France and Austria could all see their AAA rating downgraded if things get worse.

The ruling means there is a one in three chance of losing the AAA rating in the next 18 months.

It is bad news for the government which has staked its economic credibility on maintaining the UK’s AAA rating as a way of keeping interest rates down.

A downgrade would increase the cost to the government of borrowing money, which would plunge the UK further into the red and lead to rising mortgage rates.

But there was some good news for Chancellor George Osborne when Moody’s endorsed the government’s austerity programme and warned that failure to stick to the deficit reduction plan would make matters worse.

Moody’s praised the way ‘the government is implementing an ambitious fiscal consolidation programme’ and ‘its commitment to restoring a sustainable debt position’.

And they warned the biggest threat to the rating would be a ‘reduced political commitment to fiscal consolidation, including discretionary fiscal loosening’ – City speak for borrowing and spending more as Labour would like.

The agency also stopped short of placing Britain on ‘negative watch’, which would have signalled a likely downgrade over the next three months.

In a statement last night, Mr Osborne insisted the government would not switch to an economic Plan B: ‘This is proof that, in the current global situation, Britain cannot waiver from dealing with its debts.

‘Moody’s are explicit that it is only the Government’s “necessary fiscal consolidation” that is stopping an immediate downgrade, which would happen if there were any “reduced political commitment to fiscal consolidation including discretionary loosening”.

Crisis spreading: The euro debt crisis - and the impact of austerity measures in Athens (pictured) have hit the British economy

Crisis spreading: The euro debt crisis – and the impact of austerity measures in Athens (pictured) have hit the British economy

Taking a pot shot at shadow chancellor Ed Balls, who has argued that Britain is going too far too fast with its debt reduction plans, Mr Osborne added: ‘This is a reality check for anyone who thinks Britain can duck confronting its debts.’

Moody’s warned that Britain is at risk because ‘materially weaker growth prospects over the next few years’ has given the government and the economy less room for manoeuvre if economic conditions get worse in Europe.

‘Any further abrupt economic or fiscal deterioration would put into question the government’s ability to place the debt burden on a downward trajectory by fiscal year 2015-16.’

The agency added: ‘Although the UK is outside the euro area, the high risk of further shocks (economic, financial, or political) within the currency union are exerting negative pressure on the UK’s Aaa rating given the country’s trade and financial links with the euro area.’

Italy, Spain, Portugal, Slovenia, Slovakia and Malta all saw their credit ratings downgraded.

Moody’s said they were changing the outlook ‘in order to reflect their susceptibility to the growing financial and macroeconomic risks emanating from the euro area crisis and how these risks exacerbate the affected countries’ own specific challenges’.

Mr Osborne has repeatedly said that Britain’s economic outlook is being held back by the Eurozone crisis and the independent Office of Budget Responsibility has warned that failure to solve the crisis could plunge Britain into a double dip recession.

French Finance Minister Francois Baroin insisted last night that they will press ahead with its policies to improve competitiveness and growth while reducing the government deficit following the change in outlook.

Last month, five Eurozone countries had their credit ratings downgraded by ratings agency Fitch.

Italy, Spain, Belgium, Slovenia and Cyprus were all hit by the measure.

Here’s what other readers have said. Why not add your thoughts,
or debate this issue live on our message boards.

The comments below have not been moderated.

Does anyone admit to actually voting these idiots in power. Yes they got in by default, but the majority of votes was still with Camdoom and Clegg. Why!! they are destroying this country

“Just be thankful that we ain’t got Peabrained Balls, Gord Gord’s apprentice, running the economy now. If we had, then our credit rating wouldn’t just be under the microscope, it would be on the bonfire. – Terence, Hereford, UK, 14/2/2012 6:37***Putting political leanings to one side for a moment, Balls has a degree in economics, Osborne has a degree in history. So I’m not quite sure that your post is entirely accurate.
Tht’s as maybe, but as Gordy Broon’s underling Balls was complicit in the Liebour excessive borrowing and overspend .

Moodys, sub-prime, says it all. Their ratings are worthless.

- Terence, Hereford, UK, 14/2/2012 6:37***Putting political leanings to one side for a moment, Balls has a degree in economics, Osborne has a degree in history. So I’m not quite sure that your post is entirely accurate”””
“Terence
Just because you have a degree in economics it does not necessarily mean you have all the answers. Balls, on his own admittance, has called it wrong before by not controlling the banks. He has had his chance and blew it. He has lost all credibility and should not be in the shadow cabinet.

It was only a matter of time.

The Tories will keep on blaming labour till the next election.

The EU – the ‘ United States of Europe ‘ simply a dog that don’t hunt – and won’t hunt. Always and forever – a day late – and a dollar short….. simply hopeless.

Just be thankful that we ain’t got Peabrained Balls, Gord Gord’s apprentice, running the economy now. If we had, then our credit rating wouldn’t just be under the microscope, it would be on the bonfire.
– Terence, Hereford, UK, 14/2/2012 6:37***Putting political leanings to one side for a moment, Balls has a degree in economics, Osborne has a degree in history. So I’m not quite sure that your post is entirely accurate.

Gideon the Destroyer is certainly living up to his sobriquet. We have spineless useless children in charge of this country nowadays and thanks to them we are lurching from one crisis to the next. Thanks Gideon, Wavy Davy, Cry Baby Cloggy, The Cable Guy, Mrs May, or more likely, may not. What a shambles this once great little island now is. Trouble ALWAYS ALWAYS ALWAYS starts at the top and so it is proven to be yet again. All 3 of the main parties have had their chance and they’ve all blown it. We are now heading downwards from the gutters and into the sewers. Thanks #10 !! Triple ZZZ credit rating here we come.

Defence cuts, loans taken away, for what. Ha.

The views expressed in the contents above are those of our users and do not necessarily reflect the views of MailOnline.

Leave a Reply

You must be logged in to post a comment.

Get Adobe Flash player