UK clings on to AAA credit rating

GraphThe UK has clung on to its gold standard credit rating but has been warned that developments in the eurozone debt crisis have the potential to trigger a downgrade.

Influential credit ratings agency Moody's confirmed the UK's AAA credit rating, although it said the UK faced "formidable and rising challenges".
Moody's, which recently placed the credit ratings of all eurozone countries under review, said the UK was only "somewhat cushioned" from the crisis and warned no EU country was immune.

It added: "The outlook on the rating is likely to be sensitive to future developments in the euro area's debt crisis, even though the UK is not a member of the monetary union."

Moody's warned that the Government needs to stay on track with its fiscal consolidation if it is to retain its rating and said that any additional weakening in the economic outlook or another bank bailout could derail its efforts.

It said rising Government debt, the eurozone crisis and the weakening economy mean the UK has "a reduced ability to absorb further macroeconomic or fiscal shocks without rating implications".

The news that the UK has held on to its rating was welcomed by the Treasury. A downgrade by one of the big three credit ratings agencies would drive up the UK's borrowing costs, potentially jeopardising the Government's deficit reduction plans.

A Treasury spokesman said: "The Government's deficit reduction plan has helped restore confidence in the UK economy and keep interest rates low. However, as Moody's report points out, the UK is not immune to the problems facing our trading partners in the euro area."

Moody's said the UK had "one of the most competitive of the large advanced economies in the world, and a track record of reversing increases in debt over many decades".

The independent financial watchdog, the Office for Budget Responsibility, which was set up by the coalition Government, had helped strengthen the country's fiscal institutions, it added.
© 2011 Press Association
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