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Unit 4 Macro: The AAA Credit Rating Downgrade

Saturday, February 23, 2013
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Huge media headlines today for the decision by Moody's to downgrade the UK's credit rating from AAA. It will take some time to see if this decision from one of the ratings agencies - who we must recall lost much of their credibility because of the sub-prime crisis - will have genuine and significant consequences for variables such as market interest rates, the sterling exchange rate, inflation and GDP growth. Stripping away the rather facile spin from the political parties, there have been some interesting and relevant comment pieces on the downgrading and I have chosen some of them for this blog entry. I hope some of them are helpful for your studies:

Moody's Statement

"The main driver underpinning Moody’s decision to downgrade the UK’s government bond rating to Aa1 is the increasing clarity that, despite considerable structural economic strengths, the UK’s economic growth will remain sluggish over the next few years due to the anticipated slow growth of the global economy and the drag on the UK economy from the ongoing domestic public- and private-sector de-leveraging process. Moody’s says that the country’s current economic recovery has already proven to be significantly slower — and believes that it will likely remain so — compared with the recovery observed after previous recessions, such as those of the 1970s, early 1980s and early 1990s. Moreover, while the government’s recent Funding for Lending Scheme has the potential to support a surge in growth, Moody’s believes the risks to the growth outlook remain skewed to the downside."

Channel 4 News - Faisal Islam

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BBC News: Moody's strips the UK of her AAA credit rating

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Bond markets, traders and the UK's credit rating (Early Feb 2013)

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Down on the Pound - Sterling under selling pressure (FT, Feb 2013)

Comment pieces

Telegraph: UK AAA downgrade: Budget is now George Osborne's make or break moment

Martin Wolf (Financial Times): A Government at the mercy of events

Simon Wren-Lewis: The final verdict on George Osborne as Chancellor

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