Moody’s downgrades UK sovereign credit rating

While traders and investors in the Philippines rejoice over all-time highs in the stock market, favorable economic conditions and positive consumer outlook, the opposite seems to be the state of norm in the Eurozone area — with more news of recession, austerity programs and credit rating downgrade coming from that part of the world.

The latest in the recent spat of bad news from Europe is the announcement of ratings agency Moody’s that it is downgrading Britain’s sovereign credit rating for the first time in the country’s history.

On February 22, top credit rating agency Moody’s stripped the United Kingdom of the highly-coveted Aaa rating and downgraded it one notch lower to Aa1.

“Aa1” is still an “investment-grade” rating, but the downgrade signals a weakening in the country’s ability to pay sovereign debt. Credit ratings are a measure of an entity’s credit-worthiness and a downgrade shows a diminished capacity to meet financial obligations (Learn more about credit ratings in the article Credit Ratings by S&P, Moody’s and Fitch Ratings).

In the downgrade announcement, Moody’s also changed the outlook on the nation’s debt from stable to negative. In its decision, the ratings agency cited weakness in UK’s growth outlook and challenges to the government’s fiscal consolidation program.

“Despite considerable structural economic strengths, the UK’s economic growth will remain sluggish over the next few years due to the anticipated slow growth of the global economy and the drag on the UK economy from the ongoing domestic public and private sector deleveraging process,” the agency said.

Moody’s also believes the UK will experience continued periods of “sluggish growth” in the next 3-5 years and the country’s fiscal position will most likely remain unchanged and will not be reversed before the year 2016.

The ratings downgrade is a big blow to the administration of George Osborne, Chancellor of the Exchequer, who has pinned his hopes on retaining the triple-A rating while implementing various austerity measures and fiscal spending cuts. The opposition Labour Party has previously decried the fiscal squeeze, arguing that the cuts in fiscal spending only worsens the country’s economic recovery.

In the fourth quarter of 2012, the UK economy shrank 0.3% on a quarterly basis, putting the country on the brink of a recession.

With the downgrade, the United Kingdom leaves the elite group of 15 countries still enjoying the top Aaa status. Among these countries is the United States, which is still in the triple-A league albeit currently with a negative country outlook. The United States has earlier been downgraded in 2011 by Standard and Poor’s, another credit rating agency, from AAA to AA+.

The impact of a credit rating downgrade is explained in the post Impact of the US Credit Rating downgrade by S&P.

Read these other useful articles:

About the Author

PSEi support seen at 6,200 and 6,000 amid weaker Peso

In a not-so-surprising move, the U.S. Federal Reserve (Fed) yesterday raised interest rates by 75 basis points (bps) or 0.75% in a bid to tame rising inflation in the United States. This was the third consecutive 0.75% rate hike by the Fed, which brings the federal funds rate, the central bank’s benchmark interest rate, to ... Read more

Official SWIFT Code of BDO, BPI, Metrobank, Philippine banks

When sending cash remittances or wire transfer to a bank account in the Philippines (such as BDO, BPI, Metrobank, Landbank, DBP, etc.), you’ll surely need the SWIFT Code of the bank. Look no further because you can find all the SWIFT Codes you need in this list! Make sure you’re using the right bank code ... Read more
blank

How to Waive your Credit Card Annual Fee (BDO, BPI, Metrobank, RCBC, Citibank, UnionBank)

Without a doubt, one of the most annoying fees that credit cardholders have to pay is the annual fee. Majority of cardholders are familiar with this fee and majority of us likely pay this grudgingly year after year after year. In the case of my credit card with BPI (Bank of the Philippine Islands), I’m ... Read more
blank

Why Filipinos do not become business owners or entrepreneurs

For a majority of Filipinos, entrepreneurship does not seem to be a typical, expected path. This is not surprising, considering that in school, students are primarily taught to become employees after graduation. Students train for years to become staff workers, reporting to a supervisor, and just waiting to receive their wages or salaries every month. ... Read more
blank

My experience investing in Mutual Funds in the Philippines

I started investing in mutual funds when I was 22 years old. As an Overseas Filipino Worker (OFW) then, I was fortunate to be able to save some money at that young age because of my work abroad. One time while I was on vacation in the Philippines, I saw a large billboard in EDSA ... Read more
blank

Income Tax Tables in the Philippines (2022)

The Philippines’ new tax reform bill, known as TRAIN or Tax Reform for Acceleration and Inclusion, was signed into law on December 19, 2017 and its implementation began on January 1, 2018. What are the new income tax rates under the TRAIN law? How will TRAIN affect income taxes of individuals and corporations? How is the ... Read more
blank

PSE Stocks Performance under each Philippine President (1987-2021)

Did you know that Philippine stocks were able to achieve an astounding growth of 800% in a span of 30 years? From 1987 until 2018, the Philippine Stock Exchange index (PSEi) rose from 1,000 points to a peak of 9,000 points — generating a return of 800% over 30 years. (The PSEi is an index ... Read more
blank

SSL 2022: Salary Increases for Teachers, Nurses, Gov’t Employees

Good news to all government employees! There’s a new round of salary increases beginning January 1, 2022! Millions of employees of the Philippine government — including public school teachers, nurses and staff of government hospitals, and workers in local and national government agencies, etc. — will be getting an automatic salary adjustment this 2022 under ... Read more
blank

PSE Trading Hours in 2022: What time open, when closed?

Before you take the plunge into stock trading and investing, make sure you understand what stocks are and how the Philippine Stock Exchange (PSE) operates. Unlike other investments that are relatively safe, stock trading is risky and loss of money is a possibility. So before you deep dive into the exciting world of stock trading, ... Read more

Price Floor and Price Ceiling of PSE Stocks

Trading bands in the PSE come in two forms: Price Ceiling, or the upper price limit, and Price Floor, or the lower price limit.

Leave a Comment