Britain has lost it’s coveted AAA credit rating – but how will this affect UK business?
Over the weekend, credit reference agency Moody’s announced the UK’s official downgrade from it’s gold standard AAA credit rating to AA1, indicating that sluggish grown is predicted for the UK economy in the coming months.
While a lesser credit rating is never welcomed, this may not be as worrying as it at first seems.
What does this mean?
The credit ratings of countries determine how much interest they will need to pay on the money they borrow, and are an indication of how much of a risky proposition they are to lenders. While we did have the highest rating (AAA), we were at the time still judged to be unstable. Despite now being downgraded to AA1, the economy has stabilised, although growth is predicted to be poor.
Effects on the Markets
The biggest effect the downgrade may have is on the currency markets, which is likely to weaken the GB Pound against the US Dollar. As oil is sold in USD, this could mean that petrol prices rise yet again, putting further pressure on motorists and the transport industry.
However, the weaker Pound will also make the UK a more attractive supplier to other countries as costs would be slightly reduced, meaning it could lead to an increase in exports and investment.
The Stock Market is unlikely to be much affected as the downgrade is a possibility that has been planned into their forecasts following a warning over a year ago that it may happen.
George Osborne
Since taking up the position as Chancellor following the general election in 2010, Osborne has been dedicated to maintaining the UK’s AAA credit rating, vowing to do anything in his power to keep it. This announcement is going to be a huge blow to him, and emphasises his critics’ calls that his austerity plan is not working. However, Osborne takes a different view, believing that the downgrade shows that he needs to refocus on decreasing the budget deficit to get the UK back into shape. He will be under considerable pressure to regain the top rating as quickly as possible.
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