UK AAA-rating could be removed in months says Moody's

The UK’s AAA rating faces a downgrade within the next four months if the economy dips sharply again, credit rating giant Moody’s has warned.

The company placed British debt on a negative outlook at the beginning of 2012. After an Olympic bounce in the third quarter, with growth hitting an annualised 1%, lead indicators have weakened.

Bank of England governor Mervyn King yesterday said that the Q3 figure was a one-off, and that the country faced a ‘long and winding road’ to a sustained recovery.

‘The UK's growth shortfalls have clearly been credit-negative and have reduced the sovereign's ability to absorb further fiscal or economic shocks,’ said Moody’s in its annual UK credit report.   

‘Despite the UK's clear political commitment to fiscal consolidation, the weaker macroeconomic environment will create headwinds for revenue growth and increase the risk that the country's debt metrics will not stabilise within the next three to four years.’

Capital Economics pointed to the 1.8% fall in industrial output between August and September, the largest fall since August 2009, as a stronger forward indicator than the quarterly growth figures.

‘It is becoming increasingly difficult to see where support to the economy may come from, at least in the near-term,’ wrote the research house’s UK economists Vicky Redwood and Martin Beck.