Saturday

15th Aug 2020

UK downgrade rounds off EU's Black Friday

Rating agency Moody's stripped the UK of its coveted AAA credit rating on Friday (22 February), rounding off a day of economic gloom in the EU.

In a statement released shortly before the closure of the markets, Moody's said that the downgrade was the result of "continuing weakness in the UK's medium-term growth outlook, with a period of sluggish growth which Moody's now expects will extend into the second half of the decade".

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

  • Britain's credit rating has been cut for the first time since 1978 (Photo: MyTudut)

It is the first time Moody's has downgraded the UK's creditworthiness since its ratings system was set up in 1978. Meanwhile, the two other big rating agencies - Standard & Poor's and Fitch - are yet to cast their verdict ahead of the country's next annual budget on March 20.

The downgrade leaves just six EU countries - Denmark, Finland, Germany, Luxembourg, the Netherlands and Sweden - with AAA ratings.

The UK's credit rating has been under pressure for several years as the country struggles to recover from the damage caused by the 2007-9 financial crisis.

It managed 0 percent growth in 2012 and the European Commission has forecast a 0.9 percent increase in output over the course of 2013. Among the 27 EU countries, only Spain, Ireland and Greece ran a budget deficit higher than the UK's projected 6.3 percent shortfall in 2012. Meanwhile, the UK's debt pile is expected to clear 95 percent in 2013.

The news is a big blow to the Conservative-led Coalition government and, in particular, Chancellor George Osborne. Osborne had staked his political reputation on protecting the UK's triple AAA status.

Responding to the news, Osborne said that the downgrade was a "stark reminder of the debt problems facing our country". He added that the government would continue "delivering the plan that has cut the deficit by a quarter, and given us record low interest rates and record numbers of jobs."

The downgrade came at the end of a day of dismal economic news, following the morning publication of the European Commission's Winter Forecast. The EU executive expects the eurozone to remain in recession in 2013 with economic output falling by a further 0.3 percent over the course of the year.

There was, however, a crumb of comfort as Moody's also revised the UK's economic outlook from 'negative' to 'stable', praising what it described as the country's "significant credit strengths."

Moreover, the downgrade is more likely to be a symbolic blow and is not expected to have a significant effect on UK borrowing rates.

UK spreads on ten-year government bonds, which had fallen to historic lows over the past two years as investors have searched for safe investment havens outside the eurozone, currently stand at 2 percent, around 0.5 percent higher than those of German Bunds.

Eurozone recession to continue in 2013

The eurozone economy will shrink by a further 0.3 per cent in 2013, the European Commission has said. The bloc will have to wait until 2014 before seeing economic growth.

Eurozone still mired in recession

The eurozone economy shrank in the final three months of 2012, dealing a blow to those hoping that the bloc's recession had run its course.

Ratings agency downgrades EU on summit day

A top US agency has downgraded the bloc's rating over concerns that some member states - notably Britain - may not pay their share into the common budget.

Top EU officials urge MEPs give quick budget-deal approval

MEPs criticised the EU deal on the budget and recovery package clinched by leaders after five days of gruelling talks, saying it is not enough "future-oriented", and cuts too deeply into EU policies, including health, innovation, defence and humanitarian aid

EU Parliament gears up for fight on budget deal

European parliament president David Sassoli said certain corrections will have to be made in the budget, citing research and the Erasmus program for students, calling the cuts "unjustified".

News in Brief

  1. Most EU states oppose US sanctions on Russia pipeline
  2. UK imposes quarantine on France, Netherlands, Malta
  3. At least 3.5m EU nationals to stay in UK
  4. UK urged to 'calm down' on migrants
  5. Pompeo starts EU tour with anti-Chinese 5G deal
  6. Dutch lawsuit seeks billions from tech firms
  7. Amazon people urge EU banks to stop funding pollution
  8. Russia vaccine could be "dangerous", Germany says

EU forecasts deeper recession, amid recovery funds row

The economies of France, Italy and Spain will contract more then 10-percent this year, according to the latest forecast by the EU executive, as it urges member state governments to strike a deal on the budget and recovery package.

Stakeholders' Highlights

  1. UNESDANext generation Europe should be green and circular
  2. Nordic Council of MinistersNEW REPORT: Eight in ten people are concerned about climate change
  3. UNESDAHow reducing sugar and calories in soft drinks makes the healthier choice the easy choice
  4. Nordic Council of MinistersGreen energy to power Nordic start after Covid-19
  5. European Sustainable Energy WeekThis year’s EU Sustainable Energy Week (EUSEW) will be held digitally!
  6. Nordic Council of MinistersNordic states are fighting to protect gender equality during corona crisis

Join EUobserver

Support quality EU news

Join us