Despite downgrade, UK officials vow to press on with austerity

Why are Europe's economies in a slump?
Why are Europe's economies in a slump?


    Why are Europe's economies in a slump?


Why are Europe's economies in a slump? 02:09

Story highlights

  • Ministers have defended the government's economic record after the UK lost its triple A rating
  • The move was made over concerns over sluggish growth in the wake of austerity measures
  • Osborne: "Far from weakening our resolve ... this decision redoubles it."

Ministers have defended the government's economic record after the UK lost its triple A rating for the first time since the 1970s amid concerns over sluggish growth.

Moody's, the credit rating agency, downgraded Britain one notch to Aa1 late on Friday in a move Labour branded a "humiliation" for George Osborne.

As news of the decision filtered through Westminster on Friday night, the chancellor insisted he would stick by his cuts programme, which is aimed at eliminating the current structural deficit by 2018.

Mr Osborne said: "Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it."

Danny Alexander, the Liberal Democrat Treasury chief secretary, defended the government's handling of the economy and pledged his party's continuing support for spending cuts.

Gloomy winter economic forecast for EU
Gloomy winter economic forecast for EU


    Gloomy winter economic forecast for EU


Gloomy winter economic forecast for EU 04:25
Shipping giant's warning for year ahead
Shipping giant's warning for year ahead


    Shipping giant's warning for year ahead


Shipping giant's warning for year ahead 03:55

Mr Alexander told the BBC on Saturday: "This is disappointing news ... [but] the credit rating agencies are one benchmark amongst many in terms of the economy."

Moody's delivered a gloomy forecast for the UK's growth, predicting that stagnation could last at least until 2015. The agency said in a statement: "The continuing weakness in the UK's medium-term growth outlook, with a period of sluggish growth which Moody's now expects will extend into the second half of the decade."

But it has placed the country on a stable outlook, minimising the risk of imminent further downgrades. The agency said: "The stable outlook ... reflects Moody's expectation that a combination of political will and medium-term fundamental underlying economic strengths will, in time, allow the government to implement its fiscal consolidation plan and reverse the UK's debt trajectory."

The move is unlikely to have an immediate impact on government spending. The UK's cost of borrowing has risen in recent months as markets adjusted for the downgrade, which was widely predicted. But the interest rate the government pays on its debt remains below much of the rest of Europe.

Nevertheless, it is highly damaging for the chancellor, who pinned much of his economic credibility on maintaining the triple A rating. Mr Osborne said in 2010: "Our first benchmark is to cut the deficit more quickly to safeguard Britain's credit rating.

"Protecting the credit rating will not be easy ... [but] we will protect Britain's credit rating and international reputation."

A year earlier, when the UK was put on a negative outlook, Mr Osborne called for the Labour government to hold an early election.

Ed Balls, Labour's shadow chancellor, said on Saturday: "This credit rating downgrade is a humiliating blow to a prime minister and chancellor who said keeping our AAA rating was the test of their economic and political credibility.

"There has been no growth now for two years, our deficit is getting bigger ... the plan has not worked. This is why the chancellor is fast running out of credibility."

But Mr Alexander insisted: "Of course it's been slower than expected, but I think we are making progress down the right road."

      Europe's financial crisis

    • German Chancellor Angela Merkel talks with Finance Minister Wolfgang Schaeuble during a session at the Bundestag (lower house of parliament) on June 25, 2013 in Berlin.

      Schaeuble: 'Don't see' bailouts

      German Finance Minister Wolfgang Schaeuble says the eurozone's problems are not solved, but "we are in a much better shape than we used to be some years ago."
    • IBIZA, SPAIN - AUGUST 21:  A man dives into the sea in Cala Salada beach on August 21, 2013 in Ibiza, Spain. The small island of Ibiza lies within the Balearics islands, off the coast of Spain. For many years Ibiza has had a reputation as a party destination. Each year thousands of young people gather to enjoy not only the hot weather and the beaches but also the array of clubs with international DJ's playing to vast audiences. Ibiza has also gained a reputation for drugs and concerns are now growing that the taking and trafficking of drugs is spiralling out of control.  (Photo by David Ramos/Getty Images)

      Spain keeps partying

      Summer could not have come soon enough for Lloret de Mar, a tourist resort north of Barcelona. Despite the country's troubles, it's partying.
    • The Euro logo is seen in front of the European Central bank ECB prior to the press conference following the meeting of the Governing Council in Frankfurt/Main, Germany, on April 4, 2013.

      OECD: Slow recovery for Europe

      The global recovery has two speeds: That of the stimulus-fed U.S. and that of the austerity-starved eurozone, according to a new report.
    • The flags of the countries which make up the European Union, outside the European Parliament in Strasbourg, France.

      Europe's new threat: Slow decay

      The "rich man's club" of Europe faces economic decay as it struggles to absorb Europe's "poor people", according to economic experts.
    • Packed beaches and Brit pubs? Not necessarily. Here's what drew travelers to one of Spain's most beautiful regions in the first place

      Spain aims for big tourist summer

      Spain's economic crisis is in its sixth straight year yet tourism, worth 11% of GDP, is holding its own, one of the few bright spots on a bleak horizon.
    • Photographer TTeixeira captured these images from a May Day protest in Porto, Portugal, Wednesday by demonstrators angered by economic austerity measures. "People protested with great order, but showed discontent against the government who they blame for this economic crisis," she said. "They want the government to resign and the Troika [European Commission, International Monetary Fund and European Central Bank] out of this country."

      May Day protesters flood Europe

      As European financial markets close for the spring celebration of May Day, protesters across Europe and beyond have taken to the streets to demonstrate.
    • Croatian Prime Minister Zoran Milanovic delivers a speech in Mostar, on April 9, 2013. Prime Ministers from Bosnia's neighboring countries arrived in Bosnia with their delegations to attend the opening ceremony of "Mostar 2013 Trade Fair".

      Croatia PM: We need Italy to recover

      As Croatia prepares to enter the 27-nation European Union, the country's Prime Minister says Italy must return to being the "powerhouse of Europe."
    • Anti-eviction activists and members of the Platform for Mortgage Victims (PAH) take part in a protest against the government's eviction laws in front of the Popular Party (PP) headquarters in Mallorca on April 23, 2013.

      Spain's unemployment hits record

      Spain's unemployment rate rose to a record high of 27.2% in the first quarter of 2013, the Spanish National Institute of Statistics said Thursday.
    • People protest against the Spanish laws on house evictions outside the Spanish parliament on February 12, 2013 in Madrid, Spain.

      Welcome to Madrid: City of protests

      Spain has seen hundreds of protests since the "Indignados" movement erupted in 2011, marches and sit-ins are now common sights in the capital.