Sluggish economic growth and high debt led Moody’s to announce on Friday that it is downgrading Great Britain’s credit rating from “Aaa” to “Aa1.”
The credit ratings agency cited “continuing weakness in the UK’s medium-term growth outlook, with a period of sluggish growth which [it] now expects will extend into the second half of the decade.”
“It’s a pretty big deal,” said managing director at BK Asset Management in New York Kathy Lien. “We didn’t see a huge reaction in the pound because it’s late in the New York session. But you’ll see some more aggressive selling when the markets open (in Asia) on Sunday.”
UK finance minister George Osborne said the ratings downgrade should serve as a wake-up call.
“Tonight we have a stark reminder of the debt problems facing our country and the clearest possible warning to anyone who thinks we can run away from dealing with those problems,” said Osborne. “Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it.”
Economists expect the UK’s central bank to begin pumping money into Britain’s economy to prop up and “stimulate” growth.