Moody's Downgrades the UK Credit Rating

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Moody's Downgrades the UK Credit Rating

Moody's Downgrades the UK Credit Rating



For a few years now, the UK spread betting markets have been holding onto the premise that the country is getting to grips with its debts and meaningfully bringing down the deficit.

However, on Friday, the Chancellor got his first official slap on the wrist in the form of a downgrade from credit ratings agency Moody's.

The news was by no means unexpected, having been rumoured to have been imminent for days if not weeks, and sterling has naturally weakened over the weekend and this morning.

Having said that, the currency has not fallen by as much as many would have expected, purely because the market had already slipped in the run up to the announcement.

The Great British pound had been propped up by the belief that the deficit reduction plans were working and addressing our debt mountain.

Unfortunately, since the Chancellor's Autumn statement in December, sterling has been gradually declining as it became obvious that the lack of growth was making his targets unachievable.

There's been plenty of debate as to what the Chancellor should and shouldn't have done, but the economic situation really hasn't helped. This has been particularly difficult to control due to the effect that our neighbours have had on us.

But if Gorgeous George was to listen to the majority, he might have been better off leaving the tax hikes for another day and cutting back the state even more vigorously than he has done to now.

Unfortunately, politicians only think about one thing; being re-elected. As a result, his plans have been to impose the direct pain on voters first, with a rise in VAT and other taxes, before the wider cuts to government spending.

Whichever way you look at the downgrade, it is likely to weaken sterling further and this will ultimately import more inflation, something that consumers and the economy could really do without.

Alternatively, it should help our exporters boost economic activity by making the goods we produce cheaper to the outside world and that hope is making the FTSE rally this morning.

The index has rallied to 6375 at the time of writing, so not far off the 6400 level again.

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By Angus Campbell, 25 February 2013


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