UK Loses Triple-A Rating 
In the first such move since the 1970s, ratings agency Moody’s has downgraded the credit rating of the UK from triple-A to Aa1 because of what it calls “weak prospects” for the British economic growth.

Credit ratings are issued by credit rating agencies, which are private companies who sell their financial analysis to investors. They mark potential investments using a scorecard system and each agency uses different ones. Effectively, the ratings are an indicator of how likely the agency thinks a debt will be repaid.

The one Moody’s uses goes from Aaa to C and so this move means that the UK’s creditworthiness has been downgraded by one notch. However, it is interesting to note that the only two countries in the world’s major industrialised nations to still have a triple A rating are Germany and Canada.

In fact, when the US lost its triple A rating in 2011, the amount it had to pay to borrow actually went down, as investors still viewed the country as one of the safest bets in the world, regardless of the rating.

In addition, the credit rating agencies themselves lost credibility after the financial crisis, when they were found to have given top ratings to investments that turned out to be worthless.

It could therefore be concluded that the downgrade is not particularly important, except that during the election, Chancellor George Osborne vowed to defend the country’s triple-A rating, which can help keep down borrowing costs.

Unfortunately a very slow recovery from the financial crisis has pushed back by at least two years the Government's goal of largely eliminating the budget deficit by the time of next election in 2015.

However, from a political point of view, the downgrade could be important, as critics are now saying that the Chancellor’s fiscal measures are failing and that Labour has called it a “humiliating blow”, while Mr Osborne has continually used the threat of a downgrade as a justification for the scale and speed of deficit-cutting measures.

For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk




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