Tuesday, 9 April 2013

Credit Rating Fall may Mean Fall in Pound

The UK economy is under further pressure following the decision by Moody’s, the credit rating agency, to downgrade the UK’s AAA rating to AA1. Although the government held the line that this as no disaster and, in the current climate, to be expected, others have suggested that the decision could be a danger to the economy as a whole. The finance world is bracing itself for a fall in the value of Sterling in the wake of the downgrade.

UK Vulnerable – Kenneth Clarke
Former chancellor Kenneth Clarke has espoused the opinion that, contrary to the coalition’s stance, the UK economy could face serious damage in light of the decision. His claims that more years are needed before recovery is possible are as follows, and have been influenced by the recent world finance problems:

"It seemed perfectly sensible to me at the time," Clarke told Sky News. "It would now if it were not for the fact that it is quite clear that the global economic and financial crisis is persisting, it's worse than we thought, several more years are required."

Lord Lawson Speaks
Another former chancellor, Lord Lawson, also expressed concern at the situation, in particular his worries that the situation may lead to a ‘run’ on Sterling:

"That would not be clever, that would not be sensible, that would not be helpful," said Lawson. "But I don't think that George Osborne wants that.”

Decision ‘Symbolic’ – Vince Cable
Other government spokesmen have claimed the downgrade to be nothing other than ‘symbolic’, with Vince Cable stating:

“In terms of the real economy, there is no reason why the downgrade should have any impact."

This view is one that goes largely against the concerns of the many analysts in the market that are convinced the new AA1 rating is a real threat to the economy in times of financial constraint. The continuing problems in the Eurozone have also added to the situation, and will continue to do so, and with the markets watching Sterling closely it will be interesting to see what happens with the world market as a whole.