New fears for pound after UK's credit rating drops

 

Sterling is expected to come under pressure tomorrow following the loss of Britain's gold-plated AAA credit rating.

The pound fell late on Friday after ratings agency Moody's downgraded the country to AA1 - warning sluggish growth would continue for years.

The UK currency has already come under significant pressure this year amid mounting fears of a downgrade as growth and public borrowing figures continue to disappoint.- falling about 7% against the US dollar to 1.51 US dollars.

It has also fallen strongly against the euro to 1.15 as the UK's deepening economic woes contrast with increasing optimism in the eurozone and hopes the single currency will survive after the European Central Bank launched its bond-buying rescue plan.

Howard Archer, chief UK and European economist at IHS Global, said the pound would be "particularly vulnerable" after the downgrade, but said the markets had been increasingly pricing in the AAA rating loss for some time.

But the Federation of European Employers warned that Moody's decision could have a profound impact on the City of London as one of the world's top financial centres.

Secretary-general Robin Charter said: "The downgrading of the UK's credit status is a blow for the UK as a leading financial centre and the UK balance of payments is so reliant on its financial services that even a small loss in trading income could affect the value of sterling and have a major impact on GDP."

Gerard Lane, analyst at Shore Capital, said the credit rating reflected reality and that sterling needed to fall to parity against the euro and to 1.35 against the US dollar in order to rebalance the UK economy.

He said sterling needed to fall to "bring reality to bear on the UK consumer that we as a country - and we collectively as a consumer - are not as rich as we think we are". He said it would give exporters a chance to grow, given the need to replace oil exports, which in turn should be a source of jobs.

But business groups have warned that urgent action to get the economy moving again is needed in the Budget next month in the wake of the downgrade.

John Longworth, director general of the British Chambers of Commerce (BCC), warned that the Prime Minister and the Chancellor would have to look into more radical measures in the next six months, to stimulate exports, generate infrastructure development and create a business finance environment which favours enterprise and growth.

He said: "The fact that the ratings spell has been broken allows the Chancellor to be braver on growth, provided the growth stimulus sought reflects market sentiment."

But Ben Thompson, managing director of the Legal & General Mortgage Club, said markets would have expected the downgrade to a certain degree and there would not be too much disruption to the cost of funding.

He said plans such as the Government's Funding for Lending Scheme - which sees the Bank of England provide cheap money to the banks - should mean cheap funds were at the ready and mortgage pricing should continue to remain low.

PA

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA special investigation by Andy McSmith
News
people Ex-wife of John Lennon has died at her home in Spain
News
Lavigne performing in Seoul at the beginning of last year
people
News
Nick Clegg on the campaign trail in Glasgow on Wednesday; he says education is his top priority
peopleNick Clegg remains optimistic despite dismal Lib Dem poll ratings
Life and Style
2 Karl Lagerfeld and Choupette
fashion
Arts and Entertainment
Buttoned up: Ryan Reynolds with Helen Mirren in ‘Woman in Gold’
filmFor every box-office smash in his Hollywood career, there's always been a misconceived let-down. Now he says it's time for a reboot
News
people
  • Get to the point
2015 General Election
May2015

Poll of Polls

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Barista

£6 - £9 per hour: Recruitment Genius: This person must also have exceptional a...

Ashdown Group: Development Engineer - Slough - £45,000

£40000 - £45000 per annum + Benefits: Ashdown Group: Development Engineer/ Sys...

Recruitment Genius: Software Support Analyst - Level 2

Negotiable: Recruitment Genius: This leading provider of financial software so...

Recruitment Genius: Accounts Administrator

£14000 - £16000 per annum: Recruitment Genius: This is a security software com...

Day In a Page

War with Isis: Iraq declares victory in the battle for Tikrit - but militants make make ominous advances in neighbouring Syria's capital

War with Isis

Iraq declares victory in the battle for Tikrit - but militants make make ominous advances in neighbouring Syria
Scientists develop mechanical spring-loaded leg brace to improve walking

A spring in your step?

Scientists develop mechanical leg brace to help take a load off
Peter Ackroyd on Alfred Hitchcock: How London shaped the director's art and obsessions

Peter Ackroyd on Alfred Hitchcock

Ackroyd has devoted his literary career to chronicling the capital and its characters. He tells John Walsh why he chose the master of suspense as his latest subject
Ryan Reynolds interview: The actor is branching out with Nazi art-theft drama Woman in Gold

Ryan Reynolds branches out in Woman in Gold

For every box-office smash in Ryan Reynolds' Hollywood career, there's always been a misconceived let-down. It's time for a rethink and a reboot, the actor tells James Mottram
Why Robin Williams safeguarded himself against a morbid trend in advertising

Stars safeguard against morbid advertising

As film-makers and advertisers make increasing posthumous use of celebrities' images, some stars are finding new ways of ensuring that they rest in peace
The UK horticulture industry is facing a skills crisis - but Great Dixter aims to change all that

UK horticulture industry facing skills crisis

Great Dixter manor house in East Sussex is encouraging people to work in the industry by offering three scholarships a year to students, as well as generous placements
Hack Circus aims to turn the rule-abiding approach of TED talks on its head

Hack Circus: Technology, art and learning

Hack Circus aims to turn the rule-abiding approach of TED talks on its head. Rhodri Marsden meets mistress of ceremonies Leila Johnston
Sevenoaks is split over much-delayed decision on controversial grammar school annexe

Sevenoaks split over grammar school annexe

If Weald of Kent Grammar School is given the go-ahead for an annexe in leafy Sevenoaks, it will be the first selective state school to open in 50 years
10 best compact cameras

A look through the lens: 10 best compact cameras

If your smartphone won’t quite cut it, it’s time to invest in a new portable gadget
Paul Scholes column: Ross Barkley played well against Italy but he must build on that. His time to step up and seize that England No 10 shirt is now

Paul Scholes column

Ross Barkley played well against Italy but he must build on that. His time to step up and seize that England No 10 shirt is now
Why Michael Carrick is still proving an enigma for England

Why Carrick is still proving an enigma for England

Manchester United's talented midfielder has played international football for almost 14 years yet, frustratingly, has won only 32 caps, says Sam Wallace
Tracey Neville: The netball coach who is just as busy as her brothers, Gary and Phil

Tracey Neville is just as busy as her brothers, Gary and Phil

The former player on how she is finding time to coach both Manchester Thunder in the Superleague and England in this year's World Cup
General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?