Moodys downgrade UK credit rating to AA1

#1
Breaking news on the BBC - Moody's have downgraded the UK from AAA to AA1.

No link as yet, just the red bar on their website.

Edit -
Moody's Investors Service has today downgraded the domestic- and foreign-currency government bond ratings of the United Kingdom by one notch to Aa1 from Aaa. The outlook on the ratings is now stable.
The key interrelated drivers of today's action are:
1. The continuing weakness in the UK's medium-term growth outlook, with a period of sluggish growth which Moody's now expects will extend into the second half of the decade;

2. The challenges that subdued medium-term growth prospects pose to the government's fiscal consolidation programme, which will now extend well into the next parliament;

3. And, as a consequence of the UK's high and rising debt burden, a deterioration in the shock-absorption capacity of the government's balance sheet, which is unlikely to reverse before 2016.

At the same time, Moody's explains that the UK's creditworthiness remains extremely high, rated at Aa1, because of the country's significant credit strengths. These include (i) a highly competitive, well-diversified economy; (ii) a strong track record of fiscal consolidation and a robust institutional structure; and (iii) a favourable debt structure, with supportive domestic demand for government debt, the longest average maturity structure (15 years) among all highly rated sovereigns globally and the resulting reduced interest rate risk on UK debt.

The stable outlook on the UK's Aa1 sovereign rating reflects Moody's expectation that a combination of political will and medium-term fundamental underlying economic strengths will, in time, allow the government to implement its fiscal consolidation plan and reverse theUK's debt trajectory. Moreover, although the UK's economy has considerable risk exposure through trade and financial linkages to a potential escalation in the euro area sovereign debt crisis, its contagion risk is mitigated by the flexibility afforded by the UK's independent monetary policy framework and sterling's global reserve currency status.


In a related rating action, Moody's has today also downgraded the ratings of the Bank of England to Aa1 from Aaa. The issuer's P-1 rating is unaffected by this rating action. The rating outlook for this entity is now also stable.



Read more: http://www.businessinsider.com/moodys-strips-the-uk-of-its-aaa-rating-2013-2#ixzz2LfSVPFEN
 
#2
I read that as "Moody's had a breakdown".
 

Grumblegrunt

LE
Book Reviewer
#4
newsnight at the mo - cue slagging off ratings agencies and blaming them for the credit bollox
 
#5
Surprise, surprise. You can't have a debt to GDP ratio like the UKs hold a gold standard credit rating. As a result of this news, the pound blew 170 pips in 8 hours to close below the range that is had traded in since July 2011 and its fall is showing no signs of slowing. Not sure what the effect of AA1 will have on UK borrowing costs, but it won't be positive!

The UK is firmly in the markets sights. The sticking plaster that the Coalition has placed on the gaping wound of debt left by Labour is no longer enough to bluff them.
 
#7
BBC News - UK loses top AAA credit rating for first time since 1978

UK loses top AAA credit rating for first time since 1978

The UK has lost its top AAA credit rating for the first time since 1978 on expectations that growth will "remain sluggish over the next few years".

The ratings agency Moody's became the first to cut the UK from its highest rating, to Aa1.

Moody's said the government's debt reduction programme faced significant "challenges" ahead.

Chancellor George Osborne said the decision was "a stark reminder of the debt problems facing our country".

"Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it," he added. "We will go on delivering the plan that has cut the deficit by a quarter."

But the BBC's political editor Nick Robinson said Mr Osborne now risks being dubbed the "downgrade chancellor".

"Worse could follow if the Budget shows borrowing rising... but for most people, what will matter is not credit ratings or statistics but higher fuel, food and other prices and interest rates if go up," he added.

The UK has had a top AAA credit rating since 1978 from both Moody's and S&P.

Shadow chancellor Ed Balls said the decision was a "humiliating blow to a prime minister and chancellor who said keeping our AAA rating was the test of their economic and political credibility".

'Increasing clarity'
In announcing the ratings cut, Moody's cited the "challenges that subdued medium-term growth prospects pose to the government's fiscal consolidation programme, which will now extend well into the next parliament".

It added that the UK's huge debts were unlikely to reverse until 2016.

BBC business correspondent Jonty Bloom says for the chancellor, who made maintaining Britain's top rating one of the benchmarks of economic success when he came into office, it will be a blow.

It will massively increase the pressure on Mr Osborne, from both those who want him to raise taxes and cut spending further and from those who want him to alter course in next month's Budget and spend more to try to boost growth, says our correspondent.

The UK's net sovereign debt was the equivalent of 68% of the country's annual economic output, or GDP, at the end of last year.

"The very fact that we didn't see this downgrade happen in the past few years is a testament to the UK's credibility," Lena Komileva, an economist at G+ Economics, told the BBC.

"There are no magic fixes for this kind of problem. It's not a question of what the government is willing to do, it is what it can do."

'Gamble failed'
All three major credit agencies last year put the UK on "negative outlook", meaning they could downgrade its rating if performance deteriorates.

In his Autumn Statement in December, Mr Osborne acknowledged public finances were taking longer to rectify than planned, and admitted he would be forced to extend austerity measures by at least another year.


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.

A downgrade of a credit rating does not necessarily substantially damage the ability to borrow.

SCORE CARD

Rating agencies use different systems involving a long list of letters
A top mark is AAA or Aaa
Down to BBB or Baa3 is also safe
BB or Ba1 down to C is speculative - or "junk"
Other less sequential numbers are applied to the worst kind of bond
The US - the world's biggest economy - was downgraded from its AAA rating last year, a move that has not materially changed its borrowing costs.

The UK has experienced a double-dip recession since 2008. It 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.

Earlier this month, the Organisation for Economic Co-operation and Development said the Bank of England should be ready to inject more money into the economy to boost growth.

The Bank has so far pumped £375bn into the financial system, creating money to buy-back government bonds.

The credibility of ratings agencies have also come under attack. S&P is being sued by the US government over ratings it gave to some mortgage-backed assets in the run-up to the global financial crisis in 2007, which subsequently fell dramatically in value.
 
#9
Indeed, but what is your opinion of it all? Its all very well posting a link but you should also have something to say about it. I and I dare say many others have already seen this on the BBC webpage.

In my opinion, we should stop pussy footing around, stop giving benefits to any twat that comes to the country and stop aid to countries and start looking after ourselves for a change. Its all very well being the charitable nation that we are, but all this charity is ruining our nation.
 
#10
They are just pissed off because their stock price fell by 7% or so,that came on the back of news that Standard and Poor were being sued for giving bad advice prior to 2007.


From todays Daily Telegraph
Moody's ratings agency, predicting the past with startling precision since 1909

Does anyone take Moody’s seriously anymore? The New York-based ratings agency has played a blinder in recent years. That is to say, it has worn blinkers and hasn’t been able to see anything that wasn’t staring it in the face.

Surely the point of forecasting is that you gave useful warning in advance of whatever it is might happen, not in retrospect.

We can make fun of Fitches and Standard & Poor's. And by all means, let’s. But it is Moody’s, above all, that needs to be placed in the stocks section of stocks and shares and pelted with rotten investments.

The people who run Moody’s are a joke. I scorn them. Everybody does, from Left, Right and Centre. Yet there they are, still issuing their 20:20 warnings, like a clairvoyant who tells you what was on television the previous night.

Australia’s state government credit ratings are the agency’s latest target. They are under “negative pressure” and a downwards move on borrowings is now likely. Romania is also in Moody’s crosshairs. Political turmoil in Bucharest has increased “market concerns” about the country’s fiscal tightening. Well, there’s a surprise. Italy, meanwhile, has had its government bond ratings cut to just two points above junk status, from A3 to Baa2.

Closer to home, it turns out that Barclays may not be a good short-term investment. This is worrying. Apparently they’ve run into difficulties over some manipulation or other of the Libor rate. So Moody’s have downgraded their status. If it goes on like this, the bank’s top man, Bob Diamond, may have to consider his position.

It is as if the agency’s spectacular lack of prescience in the lead-up to the global financial crisis had never happened. You will recall that as far as Moody’s was concerned, 2007 was just another year, with nothing special going on. The US subprime crisis and prospects for Lehmann Brothers and Bear Stearns were hardly mentioned. I was reminded of Lesley Nielsen’s instruction to onlookers, in the wake of a monumental pile-up involving international terrorists, petrol tankers and an exploding missile. “All right, move along: nothing to see here.”

In June 2007, just as bankers and finance ministers were checking Expedia for the price of tickets for a handcart ride to Hell, Moody’s pulled on their rose-tinted retrospectacles and examined the data. "Be of Good Cheer" was the resulting message. The low default rate of the previous year reflected “buoyant economic conditions” around the world.

Andrea Zazzarelli, the agency’s associate analyst director of default research, was in expansive mood. “The low default volume,” he said, “is consistent with strong global economic conditions and ample liquidity.”

Greece remained off Moody’s radar as late as 2009, when the company announced that investor fears over Greek government liquidity were “misplaced”. At the same time, its sovereign debt team got American debt wrong by a staggering $2 trillion.

It was only with the handcart about to cross the Styx that Moody’s mood changed. Jumping on an adjacent bandwagon that had just struck up Nearer My God to Thee, the company now informed us that we might as well keep any money we had left under the mattress because there was nowhere safe “out there”.

With the euro crisis erupting and sovereign debt spreading like measles across the world, the message became that Europe’s banks faced a crisis greater than any since the 1930s and that – gasp! – Greece, Spain, Portugal, Italy and Ireland were on their way to an early appointment with the Devil.

You couldn’t make it up.

If I were in charge of the Federal Reserve, or the Bank of England, or the European Central Bank, I would tell these chumps where to get off – preferably from the umpteenth floor of the Shard.


Walter Ellis in today's Daily Telegraph.
 
#11
When it was the French government coming under fire from the ratings agencies, and the French Government criticised the agencies for their political interference by downgrading the French economy, the Telegraph was squarely on the side of the Ratings Agencies, and that the noise from Paris was just Sarkozy kicking off about being criticised by an outside agency.

Today its the turn of the British (Con/Lib) government and the Telegraph turns its sights on the agencies, as giving inaccurate and unreliable forecasts of the ability of a country to pay its debts. Methinks the Telegraph is being very Partisan in its views.

The fact remains that Osborne has used the AAA rating as a measure of his success in running the economy, and that success appears to be very publicly in tatters. Even this week the Telegraph was criticising Osborne for having a dual role of Chancellor and Conservative Political Strategist, Osborne should concentrate on the job he is being paid for, that of Chancellor.

Currently he is the biggest recruiting sergeant for the Labour Party, one wonders if he is on Ed Miliband's payroll.
 
#12
No bad thing; Labour can get the chance to sort out the mess the made; the Coalition never had a chance.

Liam Byrne left David Laws a note along the lines of "Sorry, there's no money left". Maybe Danny Alexander will leave one to the next Labour Chief Secretary saying "Still no money and, sorry, but you can't borrow any more either"
 
#14
Why are we all so worried about what banks and other financial businesses think? We, through our governments and with collective means (tax money) are constantly bailing those bungling fools out.
And now they're lowering the credit ratings of our countries because the money we've lent them and other countries isn't that well covered.
Who the **** do they think they are? I'm in a mind to ask a friendly MP to take away their permit to bank at all! (If I had a friendly MP that is. I don't agree with any of those cnuts....)
 
#15
Why are we all so worried about what banks and other financial businesses think? We, through our governments and with collective means (tax money) are constantly bailing those bungling fools out.
And now they're lowering the credit ratings of our countries because the money we've lent them and other countries isn't that well covered.
Who the **** do they think they are? I'm in a mind to ask a friendly MP to take away their permit to bank at all! (If I had a friendly MP that is. I don't agree with any of those cnuts....)
Ratings agencies are not banks, nor are they financial institutions. They merely assess the risk of lending/borrowing or doing business with businesses and countries. Major companies use them before signing contracts with other companies, to assess whether the business that they have negotiated is viable, and will likely deliver on the contract.

In extremis they assess the ability of a country's financial system to repay its debts or gilts/bonds, and as such are used as the basis upon which interest rates are set. The higher the risk of default, the higher the interest rate. As an example look at Greece's problems with the Euro!
 
#16
Ratings agencies are not banks, nor are they financial institutions. They merely assess the risk of lending/borrowing or doing business with businesses and countries. Major companies use them before signing contracts with other companies, to assess whether the business that they have negotiated is viable, and will likely deliver on the contract.

In extremis they assess the ability of a country's financial system to repay its debts or gilts/bonds, and as such are used as the basis upon which interest rates are set. The higher the risk of default, the higher the interest rate. As an example look at Greece's problems with the Euro!
From my previous post.
Greece remained off Moody’s radar as late as 2009, when the company announced that investor fears over Greek government liquidity were “misplaced”.
 
#18
I have a solution to our debt crisis that would see us save billions a year. It is however not the NAAFI bar so I cannot share it. It involves parasitic scum from council estates, ISO containers and the North Sea.
 
#19
Exactly.

The ratings agencies telling top tier economies like the USA or UK that they suck, is about a meaningful in the real world as the school nerd saying he doesn't like the jocks.
Didn't stop the BBC from trotting out Ed Balls this morning for his usual "The Chancellor needs to change direction." sound bite. Nothing constructive except tax the rich into exile drivel...
 
#20
I have a solution to our debt crisis that would see us save billions a year. It is however not the NAAFI bar so I cannot share it. It involves parasitic scum from council estates, ISO containers and the North Sea.
Even without going so far, there should be swinging cuts across the board in benefits of 20%.

Thats a £33 billion cut in goverment annual spending right there.
 

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