23 Feb 2013

UK's credit rating slashed

4:09 pm on 23 February 2013

Ratings agency Moody's has cut Britain's AAA credit rating based on an expectation that growth will remain sluggish over the next few years.

The ratings agency became the first to lower the UK from its highest rating to Aa1, the BBC reports.

In announcing the ratings cut, Moody's said the government's debt reduction programme faced significant challenges from that subdued medium-term growth.

It added that the UK's huge debts were unlikely to reverse until 2016.

The UK's net sovereign debt was the equivalent of 68% of the country's annual economic output, or GDP, at the end of last year.

All three major credit agencies last year put the UK on negative outlook meaning they could downgrade its rating if performance deteriorates.

Chancellor George Osborne said the decision was "a stark reminder of the debt problems facing our country".

"Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it," he added. "We will go on delivering the plan that has cut the deficit by a quarter."

First cut to UK's top rating in 35 years

The UK has had a top AAA credit rating since 1978 from both Moody's and S&P.

Shadow chancellor Ed Balls said the decision was a "humiliating blow to a prime minister and chancellor who said keeping our AAA rating was the test of their economic and political credibility".

Germany and Canada are the only major economies to currently have a top AAA rating.

A downgrade of a credit rating does not necessarily substantially damage the ability to borrow.

The US - the world's biggest economy - was downgraded from its AAA rating last year, a move that has not materially changed its borrowing costs.