UK loses its AAA credit rating

The UK’s credit rating has been dropped by Moody’s down to AA1 which is slightly lower than its previous rating of AAA. Despite this fact, George Obsorne claims that the country will not run away from its problems but admitted that the downgrade is a ‘stark reminder’ of the debt problems that Britain has to contend with.

The Chancellor reiterated that the coalition is still determined to stick to its original plan to help the British economy recover even after the rating was changed. According to Moody’s, a high and rising debt burden coupled with poor prospects for growth were starting to take their toll on the economy. However, Osborne said that this is not a reason to change course because it takes time and determination to get ahead again.

Therefore, Osborne said that instead of weakening their plans to help the economy recovery they need to go back to work on the plan that already has helped reduce the deficit marginally as well as offer new jobs and low interest rates.

The Moody decision shows how much effect the medium term economic outlook can have on future deficit reduction plans. Moody has predicted that the sluggish growth rate will most likely continue into the second portion of the decade.

For Osborne the downgrade is a large setback as he has been getting more and more pressure to take further action to get the economy moving forward. However, the chancellor has stated that maintaining the top credit rating is one reason why they need to continue to push the austerity programme through instead of fiscal consolidation.

The Labour party on the other hand has maintained that by taking away demand on the economy the Coalition is simply stunting the potential growth of the economy in the future.