If you want Aaa-rated government debt, you’ll have to go looking to Canada, or Australia, or Germany, because late last week, ratings agency Moody’s officially downgraded the United Kingdom’s government bond rating from Aaa (their highest level) to Aa1 (their second highest level). Moody’s downgrade was based on three factors: the UK’s weak medium-term growth outlook; the impact of the weak economic outlook on the government’s fiscal consolidation plan; and the high and rising public debt burden. On the last point, Moody’s expects debt to peak at over 96% of GDP in 2016.
The downgrade wasn’t really a surprise, but it did come earlier than expected. The Office of Budget Responsibility had projected that government debt would remain over 90% of GDP for at least six years – that’s inconsistent with a triple-A rating. However, the downgrade came before the official budget was announced on March 20, which is when most figured the nudge downward would have come. Read more