Credit ratings agency Moody’s have downgraded 6 Eurozone nations and put France, Austria and the UK on negative outlook. Moody’s stated that worries from the growing financial crisis in the Eurozone were the main risk drivers. They remain uncertain that the 17-nation bloc has the capability to reform its fiscal and economic framework and doubt whether the sufficient resources will be made available to deal with the crisis.
They feel Europe’s deteriorating macroeconomic prospects threaten the successful implementation of domestic austerity measures and believe the structural reforms needed to promote competitiveness will remain untenable. Moody’s maintain that these factors will keep market confidence at a desperate low and that the fragility of the Eurozone makes it susceptible to further funding shocks.
Italy and Malta were downgraded one notch from A2+ to A3. Portugal were downgraded one notch from Aa2- to Ba3. Both Slovakia and Slovenia were downgraded from A1+ to A2. And Spain was downgraded by two notches from A1+ to A3.
UK finance minister George Osborne took this as an opportunity to reassert the importance of pulling through with tough austerity measures: “This is a reality check for anyone who thinks Britain can duck confronting its debts.” Some commentators had called for the government to soften the strict regime in an attempt to stimulate economic growth, but sadly this now looks unlikely following Moody’s decision to put Britain on negative outlook.
Bank of England governor Mervyn King will be writing a letter this Valentine’s day to George Osborne, explaining why inflation is still well above the target rate of 2.0%. The correspondence’s credibility will be boosted by news today that CPI Inflation has fallen to its lowest level in 14-months in the UK.
Inflation dropped from 4.2% in December to 3.6% in January, as last year’s sales-tax adjustments have finally been priced out of the market. The tax hike from 17.5% to 20% last January is believed to have skewed previous months’ figures by 0.76%.
The Pound to Euro Exchange Rate is currently trading at 1.192 and the Pound to US Dollar Rate is currently trading at 1.572 – as of 12:48 GMT.