Pressure intensifies on sterling after downgrade of the UK's AAA credit rating

Britain’s loss of its much-vaunted AAA credit rating has resulted in the falling value of sterling as financial markets reacted to the UK’s first credit rating cut since the 1970s.
 
The reaction to ratings agency Moody’s downgrade of the UK’s credit rating saw sterling weaken to a 31-month low against the US dollar and a 16-month low against the resurgent euro.
 
Ministers and senior party figures have rallied round Chancellor George Osborne following Moody’s decision to downgrade the nation’s credit rating, believing it will have minimal impact on the government’s borrowing costs.
 
The Confederation of British Industry (CBI) has also responded to the news, insisting that the cut was “anticipated” for a number of months.
 
John Cridland, director-general for the CBI, said: "The timing of Moody’s decision may be somewhat surprising but the downgrade has been anticipated by the markets for some time.
 
"It is important to look beyond this particular badge of honour to what the UK can do to free itself from the economic doldrums. More growth through capital spending is at the top of the CBI’s list."
 
Germany and Canada are currently the only two major economies in the world to boast a top AAA rating, with Business Secretary, Vince Cable dismissing Britain’s downgrade as "largely symbolic" whilst likening credit ratings agencies to "tipsters" on economic and corporate forecasting.
 
"If you remember last year the US was downgraded, the economy grew strongly relatively to Europe … and France had a downgrade last year, its interest rates that it borrows long term in the markets are only a little above ours," added Cable.
 
"These things do not necessarily affect the real economy but they reflect the fact that we are going through a very difficult time and we are trying to balance the need to get the deficit and the budget under control with the need to get back to economic growth."

Image: The CBI

Last updated: 26th February 2013