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Moody's says UK's triple-A credit rating at risk

(Update) The UK's top-notch AAA credit rating is at risk from the eurozone crisis, Moody's, a leading agency, has warned.

Moody's says UK's triple-A credit rating at risk

(Update with market reaction) The UK's vulnerability to the eurozone crisis was underlined last night when Moody's, a leading credit ratings agency, gave a reminder that the country's prized triple-A status remains at risk.

In its annual report on the UK Moody's said Britain's economy was exposed to both domestic risks and the eurozone sovereign debt crisis. Although the agency described the rating as 'stable' and said the UK's economic management and institutional strength were supportive factors, it said the AAA status was under threat as a result of the threat of shocks from Europe.

'As a result, the outlook on the ratings is likely to be sensitive to future developments in the euro area's debt crisis, even though the UK is not a member of the monetary union.'

It added: 'The significant increase in the government's deficit and debt stocks since 2008 has eroded its ability to absorb further macroeconomic or fiscal shocks without rating implications.'

However, markets shrugged off the move, which does not constitute a formal rating announcement. Buoyed by yesterday's positive US and German data and reports of strong demand from banks for loans from the European Central Bank, the pound rose 0.5% to a two-week high of $1.574 against the dollar and versus the euro gained 0.4% to reach a near 12-month high of €1.197.

On bond markets, demand for UK gilts saw 10-year yields fall 0.02% to 2.1%, which is near an all-time low. By contrast, investors sold German bunds and US treasuries, edging their 10-yeaer yields slightly higher at 1.99% and 1.95% respectively.

The FTSE 100, meanwhile, rose 0.7% or 38 points to 5,487 and the FTSE Eurofirst 300 also gained 0.7%, or 7 points, to 983. 

Analysts at Evolution Securities commented: 'The UK’s AAA rating may be at risk when Moody’s undertake their re-evaluation of European sovereigns in light of the euro area debt crisis, but otherwise the agency seems to be giving the UK some time to improve its fiscal situation.'

Nevertheless, Moody's comments increase the pressure on chancellor George Osborne, who in his autumn statement last month lengthened to seven years the time the UK will face spending cuts and higher taxes in order to balance the country's books. Any downgrade in the rating would increase UK's borrowing costs and make recovery even harder.

Moody's said: 'It is now clear that the country's weaker economic prospects over the next few years are creating headwinds that are significantly slowing the pace of fiscal consolidation and debt reduction.'

Sarah Carlson, Moody's UK analyst, told the Financial Times: 'We talk about countries having altitude in the AAA ratings space. Cleary the UK's has been substantially reduced.'

The Treasury put a brave face on Moody's comments, striving not to repeat France's fury at similar warnings about its AAA credit rating from Standard & Poor's, Moody's main rival. A spokesman told the Daily Telegraph: 'As Moody's ponts out, the UK is not immune to the problems facing our trading partners in the euro area ... it is important that the euro area continues to take decisive action to fix their problems.'

10 comments so far. Why not have your say?


Dec 21, 2011 at 09:22

Has a credit rating agency ever uprated a credit rating?

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Dec 21, 2011 at 12:50

The rating agencies have been wrong in many cases in recent years and have a lot to answer for and I would not take Moody's too seriously.

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Dec 21, 2011 at 13:27

Unfortunately the markets take them seriously!!

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Dec 21, 2011 at 14:24

"seriously" is perhaps the wrong word, but they certainly plug the HFT in and react to the CRA downgrades. But its all about paying the piper and making money.

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Paul H.

Dec 21, 2011 at 14:35

Note the words:- " the AAA status was under threat as a result of the threat of shocks from Europe."

Despite George's best efforts, the Euro is undermining the UK's AAA credit rating and it would appear that there is nothing we can do about it! Just watch the French crow if we lose ours before they do!

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Dec 21, 2011 at 14:44

From a logical point I don't quite follow what the threat of a downgrade means. Surely if a credit rating is at risk of being lowered then it should be lowered?

It's a bit like saying something's safe now, but might become risky is effectively the same as saying it's risky!

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Paul H.

Dec 21, 2011 at 14:58

True, it does seem rather pointless when you put it like that. But it does allow the rating agencies to claim "I told you so" if it actually happens! Otherwise what use would they be!

Good point there, without them, the markets would be a lot less jittery and I do wonder why they place so much importance in what the agencies actually have to say.

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Chartered Accountant

Dec 21, 2011 at 17:07

Why are they talking about "a significant increase in the governments deficit and debt stocks since 2008"? Didn't they notice at any time in 2009, 2010 or 2011? It might make more sense if they were specific about when these "increases" actually occurred. It is surely more important to factor in whether the present government intends to redress the problems that they inherited.

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Keith Snell

Dec 21, 2011 at 23:45

I doubt the triple AAA deserves to be reduced, but if Moody's de rate the accolade the worst effect it is likley to have is to increase our already low borrowing rate. The reduction of government borrowing this month should assist in these terms provided the government continues to take strides in reducing borrowing and ignores the "pour money into economy philosophy" of the current opposition party.

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Dec 22, 2011 at 16:01

Not to worry, I have just downgraded Moody's rating. Who are on earth are these arrogant, conceited, bloated and useless rating agencies?. They are just full of a load of bullshit the pompous B****stds!

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