Britain loses AAA credit rating due to poor economic growth and continued austerity

Monday, February 25, 2013

George Osborne: "Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it".
Image: HM Treasury.

The US-based credit rating agency Moody's Investors Service announced on Saturday their decision to downgrade their rating of the United Kingdom economy from AAA to AA1 - stating that lack of economic growth and austerity continuing into 2016 are to blame.

Moody's Investors Service said in a statement: "The main driver underpinning Moody's decision to downgrade the UK's Government bond rating to AA1 is the increasing clarity that, despite considerable structural economic strengths, the UK's economic growth will remain sluggish over the next few years due to the anticipated slow growth of the global economy and the drag on the UK economy from the ongoing domestic public- and private-sector deleveraging process".

George Osborne, the Chancellor of the Exchequer, said that the move to lower the credit rating was a "stark reminder" of the debt problems that the country is facing and that the government is planning to stick to it's original deficit reduction plan. He went on to say "Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it".

The British economy shrank by 0.3% in the final quarter of 2012 and output remained flat throughout last year - the economy would have to grow in the first quarter of 2013 in order to avoid a recession. The Organisation for Economic Co-operation and Development warned George Osborne last month that he should slow down the rate of his deficit reduction and austerity programme if Britain entered a triple-dip recession.

The Labour Party has said that the government must reduce the number of spending cuts and focus on growth. Ed Balls, the Shadow Chancellor of the Exchequer, said: "This credit rating downgrade is a humiliating blow to a Prime Minister and Chancellor who said keeping our AAA rating was the test of their economic and political credibility."