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Pound falls after Moody's downgrades UK's AAA rating Pound falls after Moody's downgrades UK's AAA rating
(35 minutes later)
The value of sterling has fallen as financial markets reacted to the loss of Britain's top AAA credit rating.The value of sterling has fallen as financial markets reacted to the loss of Britain's top AAA credit rating.
The pound fell to a two-and-a-half year low against the dollar and a 16-month low against the euro on MondayThe pound fell to a two-and-a-half year low against the dollar and a 16-month low against the euro on Monday
On Friday ratings agency Moody's cut the UK's credit rating, the first cut since the 1970s.On Friday ratings agency Moody's cut the UK's credit rating, the first cut since the 1970s.
However, the FTSE 100 share index opened up 30 points at 6,366, with some analysts saying that a ratings downgrade came as no surprise.However, the FTSE 100 share index opened up 30 points at 6,366, with some analysts saying that a ratings downgrade came as no surprise.
The value of sterling has been edging down for several weeks following concerns about the worsening outlook for the UK economy and speculation that the AAA rating was under threat.The value of sterling has been edging down for several weeks following concerns about the worsening outlook for the UK economy and speculation that the AAA rating was under threat.
Sterling was down 0.1% against the dollar at $1.5155, having fallen to $1.5073 in trading in Asia earlier. Sterling was down 0.1% against the dollar at $1.5155, having earlier fallen to $1.5073 in trading in Asia. The euro was up 0.8% against the pound at 87.22 pence, not far from a 16-month high of 87.75 pence.
The euro was up 0.8% against the pound at 87.22 pence, not far from a 16-month high of 87.75 pence. This year so far sterling has lost nearly 7% against the dollar, while the euro has gained 7.5% against the pound.
Over the weekend the government has played down Moody's move, but Labour described it as a "humiliation" for the coalition and said ministers must change course.Over the weekend the government has played down Moody's move, but Labour described it as a "humiliation" for the coalition and said ministers must change course.
'Largely symbolic'
Moody's downgrade included a warning that growth would "remain sluggish" over the next few years. The agency said the government's debt reduction programme faced significant "challenges".Moody's downgrade included a warning that growth would "remain sluggish" over the next few years. The agency said the government's debt reduction programme faced significant "challenges".
'Difficult time' Jim Rogers, a long-time investment partner with George Soros, told the BBC that he expected sterling "to continue to go down further in real terms".
He said he was "not optimistic" about the UK economy, but added that several economies, including Japan and the US, were also in "serious trouble".
On Sunday, Business Secretary Vince Cable dismissed the downgrade as "largely symbolic". Mr Cable likened credit ratings agencies to "tipsters" and part of the "background noise we have to take into account", suggesting they had a "pretty bad record" on economic and corporate forecasting.On Sunday, Business Secretary Vince Cable dismissed the downgrade as "largely symbolic". Mr Cable likened credit ratings agencies to "tipsters" and part of the "background noise we have to take into account", suggesting they had a "pretty bad record" on economic and corporate forecasting.
He said the US and France had both survived similar cuts to their ratings in the past.He said the US and France had both survived similar cuts to their ratings in the past.
"In terms of the real economy, there is no reason why the downgrade should have any impact... these things do not necessarily affect the real economy but they do reflect the fact that we are going through a very difficult time," he said."In terms of the real economy, there is no reason why the downgrade should have any impact... these things do not necessarily affect the real economy but they do reflect the fact that we are going through a very difficult time," he said.
A weaker pound, while making exports cheaper, is also likely to push up the cost of imports and put upward pressure on inflation.A weaker pound, while making exports cheaper, is also likely to push up the cost of imports and put upward pressure on inflation.
Shadow chief secretary to the Treasury, Rachel Reeves, said if the downgrading affected the value of the pound people could really start to suffer.Shadow chief secretary to the Treasury, Rachel Reeves, said if the downgrading affected the value of the pound people could really start to suffer.
She told the BBC: "I think the prospect of the pound being weaker is actually very bad news for the economic recovery, and very bad news for families who are already struggling with rising gas and electricity prices, rising petrol prices, rising transport prices, and for pensioners as well who've seen those essentials go up it's really, really tough for them right now." 'Debt junkie'
On Sunday, former Conservative chancellor Ken Clarke said the coalition should "stick to" its policy, adding: "I think the way in which we will recover confidence is making clear we're a strong firm government, that the strategy we're on is the one that is eventually going to get things better and that the alternatives frankly are a bit odd." She told the BBC on Monday: "I think the prospect of the pound being weaker is actually very bad news for the economic recovery, and very bad news for families who are already struggling with rising gas and electricity prices, rising petrol prices, rising transport prices, and for pensioners as well who've seen those essentials go up it's really, really tough for them right now."
The downgrade by Moody's also sparked comment on whether financial markets should give credence to ratings agencies.
Dr Tim Morgan, global head of research, at Tullett Prebon, said in a blog: "Tempting though it is, one should not attach too much importance to the decision by Moody's to strip the UK of its AAA credit rating. For a start, credit rating agencies' own credibility hasn't recovered - perhaps it never will - from their role in the sub-prime fiasco.
"More to the point, this [downgrade] doesn't tell us anything we didn't already know - Britain is a debt-junkie, seemingly incapable of living within its means."
The UK is at risk of slipping back into recession for the third time since 2008.The UK is at risk of slipping back into recession for the third time since 2008.
The economy grew in the third quarter of last year, boosted by the impact of the Olympics, but shrunk again by 0.3% in the last three months of 2012 and would enter a triple dip recession if it contracted in the first quarter of 2013. The economy grew in the third quarter of last year, boosted by the impact of the Olympics, but shrunk again by 0.3% in the last three months of 2012 and would re-enter recession if it contracted in the first quarter of 2013.
Germany and Canada are the only major economies to currently have a top AAA rating, as much of the world has been shaken by the financial crisis of 2008 and its subsequent debt crises.Germany and Canada are the only major economies to currently have a top AAA rating, as much of the world has been shaken by the financial crisis of 2008 and its subsequent debt crises.