UK may lose its AAA rating; Moody’s warns

India Infoline News Service | Mumbai |

Against the dollar, sterling was down 0.4% at US$1.6375, having hit a session low of US$1.6355.

The pound sterling declined against the euro for the seventh consecutive day after Moody’s Investors Service said that the UK is at risk of losing its coveted "AAA" credit rating if growth remains weak and the government fails to meet its debt-cutting target.


A senior analyst at Moody's was quoted as saying on Wednesday that the UK's sovereign ranking is “stable.”


The pound lost 0.2% to 89.48 pence per euro as of 9:37 a.m. in London, after reaching 89.76 pence, the weakest level since May 5. This is the longest losing streak for the pound since November 2009.


Against the dollar, sterling was down 0.4% at US$1.6375, having hit a session low of US$1.6355.



Moody's analyst Sarah Carlson was quoted as saying that Britain's weaker economic growth prospects over the next two years did not alone cast doubt on the UK's sovereign rating.


"We believe that slower growth combined with weaker-than-expected fiscal consolidation efforts could cause the UK's debt metrics to deteriorate to a point that would be inconsistent with a Aaa rating," she said.


The British government aims to eliminate a budget deficit of around 10% of GDP over the next four years, but muted growth has prompted some people to cast doubt over this goal.


A weak UK economy is expected to ensure that the Bank of England (BOE) leaves rates at record lows for some months to come, widening the yield differential between the UK and euro zone and increasing the appeal of the euro against the pound.


The BOE on Thursday is expected to leave key rates on hold at 0.5%. It is expected to have little impact on markets.


 

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