City refuses to panic over the loss of UK's AAA credit rating


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The Independent Online

The City refused to panic over the loss of the UK’s AAA rating today as shares headed higher and sterling avoided a major sell-off.

The first chance for shares in London to react to the historic downgrade from credit ratings agency Moody’s late on Friday saw the FTSE 100 blue-chip benchmark gain 29.39 points to 6365.09.

The pound touched a 16-month low against the euro but largely held its ground against the dollar, staying above $1.51 as analysts said the long-anticipated ratings cut had been priced in. The government’s cost of borrowing for 10 years barely moved.

Glenn Uniacke, senior dealer at foreign exchange specialist Moneycorp, said: “We haven’t had a ‘burst the dam’ moment. People are overstating the impact of this when it is a symptom not a cause. The key problem is that in the absence of bad news on the Eurozone people are re-examining their sterling holdings.”

CMC Markets analyst Michael Hewson the pound was suffering due to the Bank of England’s willingness to tolerate higher inflation and call for more money printing by the Governor, Sir Mervyn: “It’s not the downgrade which is hurting sterling,” he added.