Triple Credit Score

Three times creditworthiness

Government creditworthiness, is a rating of a rating agency and assesses the creditworthiness of the issuer (country or government) of debt securities. For the first year since 1978, Great Britain has lost its best AAA creditworthiness. For the first year since 1978, the UK has dropped its best AAA credit standing, as it is expected that economic expansion "will stay slow in the coming years". Moody's was the first to lower the UK from its highest credit quality to A1. Moody's said the government's program to reduce indebtedness was facing major "challenges".

"Not only does this weaken our determination to implement our stimulus package, it also doubles it," he added. "What could be more serious could happen if the budget shows an increase in borrowing...but for most of us it won't be a question of creditworthiness or statistical data but of higher petrol, groceries and other costs and if interest levels rise," he added.

Since 1978, Great Britain has had a first-class AAA credit standing from Moody's and S&P. The Shadow Chancellor Ed Balls said the ruling was a "humiliating strike for a premier and registrar who said that maintaining our AAA credit ratings was the test of their commercial and policy credibility". They knew that a downgrading of the British government credit was only a question of now.

Nevertheless, Moody's announcements were a major boost to the current business climate. It is no disgrace to lose the AAA credit score at a point in history when most of the world's major economy are facing the weight of increasing debts and poor globalization. However, the symbolic fact that Britain is loosing the gilded award for the first of its kind since the seventies cannot be ignored.

Moody's competing agents are likely to make their own judgments soon. Moody's, referring to the announcement of the rating downgrade, referred to the "challenges posed by the medium-term economic outlook for the government's tax reform program, which will now reach well into the next parliament". She added that it was unlikely that the UK's high debt would be reversed by 2016.

"Moody's' primary reason for its downgrading of the UK sovereign to AA1 is the growing realisation that, despite significant underlying strength, Britain's expected slower pace of expansion and the strain on the UK economies over the next few years will keep it sluggish," Moody's said.

However, she added that the UK prospects are "stable", i.e. no further downward revisions in the near term, and added: "Britain's credit standing will remain very high. Our commentator says it will put massive upward pressures on Mr Osborne, both from those who want him to push up taxation and further reduce expenditure and from those who want him to change course in next month's budget and spends more to spur economic upturn.

At the end of last year, the United Kingdom's net public indebtedness represented 68% of its GDP. It will be a question of how much trustworthiness Mr Osborne has loss, he said. YouGov pollster Peter Kellner, chairman, said the story could be a "blame maker" for Britain's economy as fears spread that Labour's guilt might shift to the Conservatives.

"For the Tories, I think the trouble is when it comes the household, the economic forecast and the deficits forecast go bad, if the standard of living doesn't go up, if it's part of a giant effect in the next few month that makes them say the goverment has it hard to misunderstand - it could be harmful.

"All three big audit firms last year put the "negative outlook" on the UK, which means they could lower their ratings if there was a deterioration in service. Canada and Germany are the only large nations to currently have a top credit of AAA - because much of the global economy was rocked by the 2008 global credit crunch and ensuing sovereign credit crunch.

Downgrading a credit assessment does not necessarily have a significant adverse effect on creditworthiness. Most creditworthiness that can be given for a borrower's debt, suggesting that the default exposure is low. Last year, the USA - the largest nation in the entire globe - was devalued from its AAA credit standing, which did not significantly alter its cost of debt.

Moody's cancelled its French AAA credit in November. Early this week, the Organisation for Economic Cooperation and Development said the Bank of England should be prepared to invest more cash in the UK business sector to stimulate economic recovery. Credit worthiness of credit rating companies has also come under fire. The US administration is suing S&P for the credit it gave to some mortgage-backed securities in the run-up to the 2007 meltdown of the US dollar, which lost dramatic value.

Moody's announcements continued to cause the British currency to depreciate, but financiers said the effect was likely to be mitigated as market expectations of a downward revaluation had been around for some now.

Mehr zum Thema