UK scores highly for economic governance by ratings agency

News Article - 29 December 2011
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A ratings agency's annual guidance for investors has scored the UK highly for its economic governance, but warns the nation it still has "formidable and rising challenges" still to overcome.

Moody's believes the UK has "significant structural strengths" however, the continued Eurozone crisis could thwart economic growth and put paid to the Government's debt-cutting plans.

Moody's, as well as Standard & Poor's and Fitch, are the most influential ratings agencies in the UK and a downgrade by either of them can increase a nation's borrowing costs overnight.

Back in October, Moody's downgraded the credit rating of 12 of the UK's major financial firms, including Lloyds TSB, RBS, Nationwide and Santander UK.

However, the agency was quick to emphasise that the autumn downgrades did not "reflect a deterioration in the financial strength of the banking system".

The latest report from Moody's said: "A need to support the banking system could temporarily set back the Government's fiscal consolidation efforts.

"As a result, the outlook on the rating is likely to be sensitive to future developments in the euro area's debt crisis, even though the UK is not a member of the monetary union."

Moody's placed all Eurozone countries under review of their credit ratings, believing the UK is only partially cushioned from the Eurozone crisis.

However, it praised the UK as "one of the most competitive of the large advanced economies in the world" as well as its "track record of reversing increases in debt over many decades".

The agency also had praise for the Office for Budget Responsibility (OBR), the independent financial watchdog set up by the coalition, believing it has helped to strengthen and protect the nation's fiscal institutions.

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