Moody’s said “subdued” growth prospects and a “high and rising debt burden” are weighing on the British economy.
The agency said rising debt meant “a deterioration in the shock-absorption capacity of the government’s balance sheet, which is unlikely to reverse before 2016.”
It said, though, that “the U.K.’s creditworthiness remains extremely high,” and its outlook is stable.
Moody’s said “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 the U.K.’s debt trajectory.”
For the British government, the move was unwelcome but not unexpected. All three of the big rating agencies — Moody’s, Standard & Poor’s and Fitch — had placed Britain’s rating on negative watch, as the economy continues to struggle.
Your credit rating needs work, United Kingdom.
» A serious dent in the stock market’s mood: Earlier in the day, things were looking up — France and Germany, the two responsible parents of the region, pushed a new treaty to convince the rest of the region to shape up, and Italy’s Mario Monti made a good impression on investors by introducing a sweeping austerity plan in the country over the weekend — but the S&P decision sucked the life out of the room. It’s not the first time S&P has played the heavy, either.
» And in case you were wondering: This investigation began before S&P lowered the U.S. credit rating, though there’s a good chance it will now be informed by it. Anyway, if you don’t understand the credit ratings issue, here’s a good way to put it: Companies pay the agencies for high ratings. Kinda like if Warner Bros. paid Roger Ebert to recommend the latest Harry Potter movie. Now imagine if Ebert recommended “Birdemic” based on his financial interests. This would be extremely unethical behavior for journalists. But did S&P do something like that?
lorim asks: I still don't get the Fitch / Abercrombie joke, since John Knowles Fitch (founder of the ratings agency) isn't the same as Ezra Hasbrouck Fitch (co-founder of the clothing company). But perhaps I'm over-thinking this one?
» SFB says: Think about it this way: How many people know this particular piece of information? Let’s go back in time. Pretend you don’t know who either of those guys are and we’re just making a joke about the fact that a credit agency has the same name as a clothing company that The Situation wears. We made the joke without knowing this particular piece of information, and it’s funnier that way. :)
whyarethegoodurlsalreadytaken asks: I'm a bit confused with this ratings downgrade. Now that we were bumped down, what exactly does it mean? How will it (or will it at all) change our day to day lives as Americans?
» SFB says: To put it simply, it’s going to become harder to borrow. Interest rates will go up, mortgages and loans will become harder to get, and you might feel it in your own credit rating. That sucks.
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