UK Lose AAA Credit Rating

25/02/2013

The value of Sterling has fallen as financial markets reacted to the loss of Britain’s top AAA credit rating, with the pound falling to a 31-month low against the dollar and a 16-month low against the euro, the BBC reports.

Ratings agency Moody’s made the downgrade on Friday evening, the first cut since the 1970s, and means possible further problems for the UK economic recovery.

In trade in Asia on Monday, it fell to as low as $1.5073. Against the euro it was 1.145 euros, making a euro worth 87.3 pence. As trading began in Europe, it moved back up to $1.5158.

POUND STERLING V US DOLLAR (08:46am 25th February)

GBP:USD intraday chart

£1 buys $1.5150

The Government has played down Moody’s move, but Labour described it as a “humiliation” for the coalition, and said ministers must change course.

The pound fell late on Friday after the downgrade, with Moody’s warning that growth would “remain sluggish” over the next few years.

Business Secretary Vince Cable dismissed the downgrade as “largely symbolic”. Mr Cable likened credit ratings agencies to “tipsters” and part of the “background noise we have to take into account”, suggesting they had a “pretty bad record” on economic and corporate forecasting.

He said the US and France had both survived similar cuts to their ratings in the past.

“In terms of the real economy, there is no reason why the downgrade should have any impact… these things do not necessarily affect the real economy but they do reflect the fact that we are going through a very difficult time,” he said.

A weaker pound, while making exports cheaper, is also likely to push up the cost of imports and put upward pressure on inflation.

Germany and Canada are the only major economies to currently have a top AAA rating, as much of the world has been shaken by the financial crisis of 2008 and its subsequent debt crises.

The Equity market has taken the downgrade in its stride, with the FTSE 100 opening  0.74% in early trading on Monday.

(source: BBC Business News) 

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Written by Sam Gulley | Financial Planning Consultant

Sam joined Mantle Financial Planning in 2009 having previously been with Alexander Forbes and HSBC bank. Read more >>

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