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Moody's rating agency places UK on negative outlook Moody's rating agency places UK on negative outlook
(about 1 hour later)
  
US credit ratings agency Moody's has put the UK on negative outlook, meaning it thinks there is more chance the economy may lose its triple A status. The UK's top-rated AAA credit rating has been placed on "negative outlook" by US credit ratings agency Moody's.
France and Austria, who also share a top triple A rating, have been similarly graded. Italy, Spain and Portugal's ratings have been lowered. href="http://www.moodys.com/research/Moodys-adjusts-ratings-of-9-European-sovereigns-to-capture-downside--PR_237716" >It said its decision followed concerns over growth prospects and the possible impact from the eurozone crisis.
Moody's blamed the eurozone crisis for the adjustments. The move implies the UK has a 30% chance of losing its AAA credit rating within 18 months.
The UK chancellor remains committed to his policy of austerity whilst the opposition warns this could backfire. France and Austria have also been warned by Moody's over their top rating, and Italy, Spain and Portugal's ratings have been lowered.
The negative outlook for the UK means Moody's thinks there is a 30% chance of a downgrade within 18 months. "This is yet another organisation - in this case a credit ratings agency - warning Britain that if we spend or borrow too much we're going to lose our credit rating," UK chancellor George Osborne told the BBC.
"It was a reality check for the whole political system that Britain has to deal with its debts," he added.
Shadow chancellor Ed Balls described Moody's action as a "significant warning".
He said: "We have consistently argued that the chancellor's gamble - raising taxes and cutting spending too far and too fast - would backfire," he added.
BBC economics editor Stephanie Flanders said there was no suggestion that the agency would prefer the UK government to change its economic policy of austerity.BBC economics editor Stephanie Flanders said there was no suggestion that the agency would prefer the UK government to change its economic policy of austerity.
In a statement, Moody's said that it had "adjusted the sovereign debt ratings of selected EU countries to reflect their susceptibility to the growing financial and macroeconomic risks emanating from the euro area crisis". However, she added the agency's warning means spending cuts may not prevent the UK losing its credit rating - if growth falls.
Responding to the ratings decision by Moody's, UK Chancellor George Osborne said: "This is proof that, in the current global situation, Britain cannot waiver from dealing with its debts." In its statement, Moody's said: "Any further abrupt economic or fiscal deterioration would put into question the government's ability to place the debt burden on a downward trajectory by fiscal year 2015-16."
The downgrades had been justified by the "growing financial and macro economic" risks from the eurozone crisis, it said.
'Little impact'
Like personal credit scores, sovereign credit ratings are an indication of how risky it is to lend money to a country.
Treasury sources have sought to play down the significance of the ratings agency Moody's decision to place the UK's Triple A rating at risk.Treasury sources have sought to play down the significance of the ratings agency Moody's decision to place the UK's Triple A rating at risk.
The source said the decision was not "entirely unexpected" given the difficult economic situation facing the UK. Much of the reason for the potential downgrade was a consequence of the difficulties in the eurozone. The source said the decision was not "entirely unexpected" given the difficult economic situation facing the UK.
The source said that Moody's made clear any "discretionary fiscal loosening" would make a downgrade more likely and that this underscored the need for the Government out stick to its deficit reduction strategy. The source said that Moody's made clear any "discretionary fiscal loosening" would make a downgrade more likely and that this underscored the need for the government out stick to its deficit reduction strategy.
Mr Osborne added: "Moody's are explicit that it is only the government's 'necessary fiscal consolidation' that is stopping an immediate downgrade, which would happen if there were any 'reduced political commitment to fiscal consolidation'. A high credit rating from the three main agencies, Moody's, Standard & Poor's and Fitch, implies that borrowing to fund public spending will be relatively cheap.
"This is a reality check for anyone who thinks Britain can duck confronting its debts." If the rating is lowered this can push up the interest rate on new borrowing for governments.
The coalition government has come under increasing pressure to ease up on its austerity measures in the face of growing unemployment and stalled economic growth. However, many analysts believe a fall in the UK's rating would have little effect.
Labour's shadow chancellor, Ed Balls, described the change as a "significant warning". "It's all relative," said Laura Lambie from William de Broe
He said: "We have consistently argued that the chancellor's gamble - raising taxes and cutting spending too far and too fast... - would backfire." "We did see America being downgraded, they lost their AAA rating last year and that didn't have a huge detriment, in actual fact it was reasonably positive they are still seen as a safe haven when compared to other countries such as Greece and Spain, and I suspect Britain will be the same." she added.
'Reality check' The UK's "negative outlook" is the lowest level of warning offered by the agency - and can be followed by a "negative watch" implying a more than 50% chance of downgrade.
BBC economics editor Stephanie Flanders said that the negative outlook for the UK was not the same as negative watch - which means a more-than-50% chance of a downgrade. The agency said the UK faced three main risks to its top rating; slower growth and the possible impact on spending cuts, a sharp rise in borrowing costs due to inflation or a new crisis in the banking sector.
"There is no suggestion, in the agency's statement, that it would like to see the UK ease up on austerity," our correspondent added. However, the agency noted the UK "continues to be well supported by a large, diversified and highly competitive economy, a particularly flexible labour market, and a banking sector that compares favourably to peers in the euro area".
"Quite the opposite. But the opposition will be quick to note that preserving Britain's top rating has long been a central plank of George Osborne's case for deeper cuts.
"For this ratings agency at least, Britain's triple A is at greater risk now than at any time since Mr Osborne's first budget."