February 14, 2012- Moody’s, the credit rating agency, has warned the UK that it may cut its rating therefore increasing its cost of borrowing funds. Moody’s statement came following concerns of the possible impact the crisis in the eurozone will have on growth prospects in the UK.
The agency placed a “negative outlook” on the UK meaning there is about a 30% change the country could lose it’s credit rating of AAA with the next 18 months. Austria and France were also warned. Moody’s has already lowered the ratings of Portugal, Spain and Italy
Chancellor George Osborne was quick to point out that the comments by the U.S. credit agency were not criticizing the economic policy of his government. He said, “It has given us a reality check that Britain has to take care of its debts.”
He added, “This is another organization warning us that we cannot borrow or spend too much or we will lose our AAA rating.”
“The country could put in place a number of austerity measures and still lose it top credit rating if the economy were to continue to be stagnant,” he concluded
Sovereign debt classifications, like personal credit ratings indicate how risky it might be to lend money to a particular country. A high rating from the main agencies such as Fitch, Moody’s and Standard & Poor’s will help keep borrowing costs for a country much lower.