On Friday evening ratings agency Moody's Investors Service downgraded the domestic- and foreign-currency government bond ratings of the United Kingdom by one notch to Aa1 from Aaa.

The outlook on the ratings, however, is now stable, versus negative before.

The key interrelated drivers of the decision taken were:

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.

Despite the decision taken, Moody's explained that the UK's creditworthiness remains extremely high, rated at Aa1, because of the country's significant credit strengths, such as its highly competitive and well-diversified economy, a robust institutional structure or its favourable debt structure amongst others.

The GBP/USD is now lower at 1.5153, versus a level of approximately 1.526 before the announcement.

AB

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