Moody's puts UK on negative outlook
Moody's, one of the big three ratings agencies, put the UK, France and Austria on negative outlook late last night, increasing concerns the countries will lose their prized AAA ratings.
A negative outlook means any or all of these nations could face a ratings cut in the next 12 to 18 months, something the coalition in the UK has been fighting to with the dogged implementation of its austerity package.
Chancellor George Osborne was reported by various media outlets to have said the move by Moody's was a "reality check for anyone who thinks Britain can duck confronting its debts".
But the Labour opposition said it showed the painful fiscal policy was not working and that the pockets of the general public were being squeezed unnecessarily tight.
Trevor Greetham, asset allocation director at Fidelity Worldwide Investment, said: "In a rather muddled statement Moody's cites a weaker growth outlook as the prime driver for its decision to put UK on negative credit watch before conceding that the austerity it recommended is itself a cause of economic weakness."
For this reason Greetham advocates the UK uses its flexibility in being outside the eurozone to get back on track.
Policy flexibility
"Free of Europe's fiscal pact and with its own central bank and currency the UK has the policy flexibility to ride out the financial crisis. Contrary to ratings agency advice, I would support a targeted easing of fiscal policy to keep the economy moving while the consumer pays down debt. Without growth, everything becomes more difficult."
Also in its announcement, Moody’s downgraded the credit ratings of six eurozone countries, including Italy, Spain and Portugal.
It followed S&P’s downgrading of France and Austria by one notch each to AA last month.