Britain was warned by a leading credit rating agency last night that the country's cherished triple AAA rating is in jeopardy.
Moody's put the UK, along with eight other countries, on a "negative outlook", meaning that there is a one in three chance that Britain will be stripped of its top rating later this year. Moody's said that it had taken the action based on the UK's "susceptibility to the growing financial and macroeconomic risks emanating from the euro area crisis".
The news is a political embarrassment for the Chancellor, George Osborne. Mr Osborne has, until now, pointed to Britain's top credit rating as an important signal of confidence in his handling of the economy. Last night, the Chancellor stuck to his guns, saying that the move underlined the need for the Government to push on with reducing the deficit. "This is proof that, in the current global situation, Britain cannot waiver from dealing with its debts," he said. "This is a reality check for anyone who thinks Britain can duck confronting its debts."
Moody's said in its statement: "The primary driver underlying Moody's decision to change the outlook on the UK's rating to negative is the weaker macroeconomic environment, which will challenge the Government's efforts to place its debt burden on a downward trajectory over the coming years."
It added that the UK was vulnerable to the eurozone and that its outstanding debt placed it among the most heavily indebted of its triple A-rated peers. "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 rating given the country's trade and financial links with the euro area."
Moody's also put France and Austria on a negative watch and cut the ratings of Italy, Spain and Portugal outright. The agency said that the weak growth outlook for Europe is threatening the ability of states to implement domestic austerity programmes and structural economic reforms. It also warned of the "high potential for further shocks" to market confidence in the credit worthiness of both eurozone banks and sovereigns. Moody's announcement came a day after Greece's parliament approved a deep new round of budget cuts.
Last month, France was stripped of its AAA credit rating by another agency, Standard & Poor's. The same agency stripped the US of its top credit rating last August, although this latter move had little effect on debt markets, with American long-term interest rates dipping in the wake of the decision.
In addition to Britain, the other countries to be put on a "negative outlook" by Moody's are Austria, France, Italy, Malta, Portugal, Slovakia, Slovenia and Spain.Reuse content