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Moody's worried by UK growth reduction

Thu, 24th Mar 2011 13:04

Ratings agency Moody's soured chancellor George Osborne's morning by warning it could downgrade Britain's credit rating if growth slows too much.

Slower growth would make it harder for the government to rein in its budget deficit, which could put Britain's triple-A credit rating at risk, the agency said. "The government's ongoing commitment to large-scale deficit reduction is very important to the AAA rating and stable outlook," Moody's added.

"Although the weaker economic growth prospects in 2011 and 2012 do not directly cast doubt on the UK's sovereign rating level, we believe that slower growth combined with weaker-than-expected fiscal consolidation could cause the UK's debt metrics to deteriorate to a point that would be inconsistent with a AAA rating," Moody's said in a statement.

Maintaining the UK's credit rating is a central plank of the coalition government's debt reduction plan. In his well-received Budget speech yesterday, the chancellor revealed that the Office of Budget Responsibility had cut the official estimate for the UK economic growth this year to 1.7%. Moody's thinks this is still too high and cut its own forecast from 2% to 1.6%.

Weaker-than-expected UK retail sales data data underlined how fragile the UK consumer feels at present. British retail sales in February fell 0.8% on the month, sharply slowing the annual rate of growth to 1.3% in February.

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