Britain: Moody's Downgrades Britain: The Friday night drop - by Buttonwood

This Friday night drop was the old custom of PR men placing news stories in the grateful arms of Sunday newspaper financial editors. In return for an exclusive, they could usually guarantee a good press. Even the best PR man, however, would find it hard to spin Moody's decision to downgrade Britain from AAA to AA1, announced just before 10pm on a Friday night.

A lot of people thought the downgrade would happen at some point this year. Although the government had a bigger-than-expected surplus in January, it may well end up with a bigger deficit in 2012-13 than it did in 2011-12. The big spending cuts have yet to come. Austerity is planned not just for this Parliament but for the next. The economy is stuck in the doldrums, although at least unemployment has been falling. Moody's gives three reasons for the change.

"1, 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;
2. The challenges that subdued medium-term growth prospects pose to the government's fiscal consolidation programme, which will now extend well into the next parliament;
3. And, as a consequence of the UK's high and rising debt burden, a deterioration in the shock-absorption capacity of the government's balance sheet, which is unlikely to reverse before 2016."

Downgrading Britain: The Friday night drop | The Economist