UK’s credit rating has been downgraded from top grade AAA to AA1 last Friday by Moody’s Corporation as the pound sterling kept dropping over the last two years.
Doctor Vito Polito from Cardiff University Business School said: “The main reasons given were the unusually weak performance of the UK economy over the previous five years, the expectation of several more years of poor growth, the failure to reduce the debt-GDP ratio which is expected to peak in 2016, later than originally planned.
Neither the announcements of the negative outlook nor the more recent downgrade has affected the market so far: interest rates on UK government securities are still among the lowest in Europe.”
He also states that the downgrade should have no impact on Welsh economy.
Wales is already suffering from low wages and low productivity rates. Now that the credit rating has dropped, the debt reduction programme will be more and more difficult to follow.
Moody stated that the UK has a high debt which is continually growing. Although the UK has a great economic power, the situation now is not optimistic because whole Europe is still in a weak economic condition. The government is having difficulties to solve the deficit problem.
European economic scholar from China Steven Yang said: “For the past 35 years, it is the first time that the UK lost its AAA credit rating. Credit rating could show a country’s ability of solving debt problem. The whole process is quite complicated. The credit rating agency needs to analyse and cover every aspect before giving the title.
It will also cause the problem of the value of pounds. The exchange rate to dollars and Renminbi already dropped dramatically. But in the following four or five years, the economic situation of the UK should be more and more stable. However, it’s not easy for UK to get back its triple A in short-term
Economic instability also reached the US, France and Japan, all of which are all suffering from the credit rating cut.