A leading status agency has informed the collapse in economic growth, an escalation in the euro zone debt crisis, or perhaps a wobble by George Osborne over his austerity ideas would cost the UK its prized AAA credit status. Moody’s, which recently cut Belgium by two notches and is monitoring France, reaffirmed the UK’s sovereign status but said the country’s large budget deficit, slow growth and euro area visibility have reduced its “ability to absorb further shocks without rating implications”. On the Shaw Capital Management, Demonstrating how prone the UK to a downgrade, Moody’s based its prognosis on growth in 2012 of 0.7pc – in line with the official forecast, but more upbeat than both the Organization for Economic Co-operation & Development’s conjecture of 0.5pc and the shrinkage expected by a swelling group of City forecasters. Deutsche Bank on Tuesday put into the sense of doom by reducing its outlook for growth next year to “zero” and warning of a “modest technical recession”. Preserving Britain’s gold-plated rating has been central to Mr. Osborne’s technique. The Chancellor has staked his reputation on it, claiming that market credibility has helped keep borrowing costs down for the Government, businesses and households.
Moody’s heightened the Chancellor’s hand. “The currently stable outlook on the UK status depends in part on the assumption that the Government will always be on course with its fiscal consolidation programme,” it said. In part of the Shaw Capital Management, Sarah Carlson, a senior analyst, added that the decision was partly based on the UK’s “very strong record of reversing increases in debt”.”If that record was not maintained, it will have an insinuation for the outlook, if not the rating itself,” she said. However, the Government now appears cornered. Moody’s informed that weak growth “will likely slow the pace of fiscal consolidation” and that the legacy of debt left by Labour “has eroded and being able to absorb the further macroeconomic or fiscal shocks”.”Risks emanating from the euro area” are further complicating matters. However, the “competitive” economy, strong institutions such as the Bank of England, and capacity to control monetary policy all set the UK apart from the Continent. From the Shaw Capital Management, A Treasury spokesman said: “As Moody’s points out, the UK is not resistant to the down sides facing our trading partners in the euro area… it is important that the euro area continues to take decisive action to fix their problems.”
