Moody's Downgrades UK Bond Rating

Moody’s has decided to downgrade the UK bond rating from Aaa to Aa1. Moody’s justification for the downgrade includes three factors, the first of which is “sluggish” growth:

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.

Moody’s said the UK’s new rating has a stable outlook, meaning no change (up or down) is anticipated in the next 12-18 months. In what it calls a “related ratings action” Moody’s also downgraded the Bank of England one notch to Aa1.

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