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3rd Mar 2024

Britain blames euro for triple-A warning

  • Westminster bridge, London. Dowgielewicz: 'We are not pleased to see the English Channel has widened' (Photo: Paul Vallejo)

The British government has blamed the euro for ratings agency worries on its triple-A status amid a widening political gap between Brussels and London.

A UK treasury spokesman told newswires on Tuesday (20 December) that exposure to the eurozone is the main reason why Moody's earlier the same day warned that Britain's top-level grade faces "formidable and rising challenges."

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The spokesman said: "The UK is not immune to the problems facing our trading partners in the euro area; the crisis is having a chilling effect across Europe and it is important that the euro area continues to take decisive action to fix their problems."

The Moody's report noted "that no EU sovereign rating can be considered immune to this crisis." But it cited internal UK problems as the main cause of concern.

"[Britain's] near-term macroeconomic outlook has weakened, and this will likely slow the pace of its fiscal consolidation. More generally, the significant increase in the government's deficit and debt stock since 2008 has eroded its ability to absorb further macroeconomic or fiscal shocks," it said.

It added that non-euro membership is a source of strength: "[The UK's] national currency and central bank provide the UK with substantial flexibility in developing responses to economic and financial shocks."

London's take on Moody's warning is a sign of the times after Britain two weeks ago vetoed an EU Treaty change on fiscal reform.

EU-UK relations deteriorated further when core euro member France said the UK should lose its triple-A grade before France does and eurosceptic MPs in the British government said the UK should leave the Union.

In contrast, Moody's on Tuesday gave an upbeat opinion about EU newcomer Poland's credit outlook.

It "affirmed" Warsaw's A2 rating due to the government's "credible fiscal consolidation strategy" and the country's "proven track record of macroeconomic stability and resilience, even when faced with significant external shocks."

Poland is the only EU country which saw economic growth last year, giving extra weight to the outgoing Polish EU presidency's euro-optimism.

Its EU affairs minister Mikolaj Dowgielewicz on Friday told media the bloc should focus on economic growth instead of austerity, while noting that the UK is drifting into uncertain territory.

"We are not pleased to see the English Channel has widened," the minister said.

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