Moody’s slashed its rating of the UK government today, from a perfect AAA to the lesser designation of Aa1. Though not completely unexpected, the one-notch cut signifies that the UK no longer has a perfect credit risk.
Moody’s assessment was based on three things:
- the UK’s foundering economy,
- poor growth prospects amid austerity measures,
- and a high debt load that could restrict the government’s ability to stimulate the economy.
Although all three major ratings agencies—Moody’s, Standard & Poor’s, and Fitch—have threatened to cut the country’s rating, Moody’s becomes the first to actually follow through. Should a second ratings agency join the party, investors with strict standards based on agency ratings could be forced to abandon UK sovereign bonds, which could force the UK to pay more money to borrow. S&P said there was a one-in-three chance that it could cut its rating for the UK; Fitch recently reaffirmed its AAA-rating of the country, although it maintains its negative outlook.
Read Moody’s full statement on the downgrade here.