Business World

Sunday 17 November 2019

UK loses top Aaa rating from Moody's as growth outlook dips

Fergal O'Brien

BRITAIN lost its top credit rating from Moody's Investors Service, which cited the continuing weakness in the nation's growth outlook and the challenges that presents to the government's fiscal consolidation programme.

The rating on the UK was lowered to Aa1 and the outlook on the nation's debt changed to stable, Moody's said in a statement yesterday.

With the UK's high and rising debt burden, a deterioration in the Government's balance sheet is unlikely to be reversed before 2016, the statement said.

Pressure

The cut will increase political pressure on Chancellor of the Exchequer George Osborne, with the opposition Labour Party calling on him to scale back his fiscal squeeze as the economic recovery struggles to gain traction.

Still, investors often ignore such actions, evidenced by the drop in French 10-year bond yields following a downgrade last year and a rally in Treasuries after the US lost its top rating at S&P in 2011.

Osborne said in his autumn statement on December 5 that he's no longer likely to meet his target to begin cutting the burden of government debt in 2015-16 after his fiscal watchdog cut its growth forecasts. Standard & Poor's put the UK's rating on a negative outlook a week later.

Fitch Ratings said on the day of the budget that missing the debt target "weakens the credibility of the UK's fiscal framework."

Formal review

It will conduct a further formal review of the rating in 2013 incorporating the budget, due on March 20.

Fitch lowered its outlook on the UK to negative from its outlook in March 2012. Moody's lowered its outlook the previous month.

Yields on sovereign securities moved in the opposite direction from what ratings suggested in 53pc of 32 upgrades, downgrades and changes in credit outlook last year, according to data compiled by Bloomberg published in December.

Investors ignored 56pc of Moody's rating and outlook changes and 50pc of those by S&P.

That's worse than the longer-term average of 47pc, based on more than 300 changes since 1974. (Bloomberg)

Irish Independent

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