Saturday, March 2, 2013

UK downgrade from Moody's - who cares?

Moody's dropped the UK from a triple A credit to Aa1arguing that slow growth and austerity will have a negative effect on finances for the country. So austerity will get you downgraded but continued budget deficits will also get you downgrades? 

Policies do not matter, if you have too much debt you are going down in ratings. Sluggish growth puts the country at greater risk of payment of debt but austerity will place a drag on growth so the UK is in a bind that cannot be easily avoided. The trajectory is unlikely to be changed from fiscal policy. This could be the future of many countries if Moody's applies the same logic.

This may place a greater burden on monetary policy which is pushing sterling lower. 

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