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Osborne rocked by warning that Britain could be stripped of AAA credit rating due to 'formidable challenges
George Osborne was last night rocked by a warning that Britain could be stripped of its gold-plated credit rating due to the crisis in the eurozone.
Leading ratings agency Moodys said the UKs coveted AAA score was safe for now with a stable outlook unlike many countries in the single currency bloc.
But it said Britain faces formidable and rising challenges and the rating was sensitive to future developments in the euro areas debt crisis.
The report said the significant deterioration of the nations finances since 2008 has eroded its ability to absorb further shocks.
The warning came as Bank of England deputy governor Charlie Bean revealed temporary loans would be made available to struggling UK lenders in the event of the break-up of the single currency.
He also said the Bank was ready to print even more money to kick-start Britains faltering recovery.
But any downgrade would be a major embarrassment for the Chancellor who has staked his political and economic reputation on protecting the UK from the storm raging in the eurozone.
Bank of England: Britain's financial sector is under threat from the eurozone
It would push up borrowing costs for the Government, businesses and households threatening to tip the country back into recession. The report comes days after a war of words erupted between Paris and London over the relative health of the French and British economies.
France is braced for an imminent downgrade of its AAA score, having seen its outlook cut to negative.
Bank of France Governor Christian Noyer said last week that Britains rating should be cut first.
Last nights Moodys report suggested this was highly unlikely.
But it said: The UK faces formidable and rising challenges. The significant increase in the governments deficit and debt stock since 2008 has eroded its ability to absorb further shocks without rating implications.
Moodys warned Britains rating could be cut if Mr Osbornes plans to cut the deficit are blown off course by weak economic growth.
It added: The outlook on the rating is likely to be sensitive to future developments in the euro areas debt crisis, even though the UK is not a member of the monetary union.
Failure to get to grips with the crisis in the eurozone could result in widespread downgrades throughout the EU, the report said.
A Treasury spokesman said: The Governments deficit reduction plan has helped restore confidence in the UK economy and keep interest rates low.
However, as Moodys report points out, the UK is not immune to the problems facing our trading partners in the euro area.
The crisis is having a chilling effect across Europe and it is important that the euro area continues to take decisive action to fix their problems.
Bank of England deputy governor Mr Bean brushed off the recent attack by Mr Noyer on Britains AAA rating.
Ahead of a meeting with his French counterpart in Frankfurt today, Mr Bean said: It wasnt a dig at the UK, it was more a dig at the ratings agencies. On the eurozone, he added: I dont want to put probabilities on
Charlie Bean: The Bank's Deupty Governor downplayed the importance of rating agencies
it breaking up, but it is clearly a worrying situation. Countries eventually may feel that they are better off outside the eurozone than in it.
One thing that is important to stress is that it is not easy for a country to leave. It is quite a disruptive thing.
He also warned that if Greece ditched the euro there would be a run on Greek banks and bankruptcy for Greek businesses as the new currency plunged in value.
Mr Bean added: Clearly you would expect us to plan for the worst, he said. We hope for the best but plan for the worst. If there are serious storms coming from across the Channel that we have to cope with, there are a number of things we can do.
UK banks dont have very heavy exposures to the troubled parts of the eurozone such as Portugal, Ireland, Italy, Greece and Spain but we would have exposures to French and German banks which have more significant exposures, so there could be linkages there.
In those circumstances, we would provide temporary loans to banks that are in difficulty. We have various facilities, and introduced a new one just a couple of weeks ago as a precaution.
'Its not needed at the moment, but if we get into difficulty, we have got it there.
We are also encouraging banks build up their capital by not distributing too much of their profits as dividends or bonuses.
George Osborne was last night rocked by a warning that Britain could be stripped of its gold-plated credit rating due to the crisis in the eurozone.
Leading ratings agency Moodys said the UKs coveted AAA score was safe for now with a stable outlook unlike many countries in the single currency bloc.
But it said Britain faces formidable and rising challenges and the rating was sensitive to future developments in the euro areas debt crisis.
The report said the significant deterioration of the nations finances since 2008 has eroded its ability to absorb further shocks.
The warning came as Bank of England deputy governor Charlie Bean revealed temporary loans would be made available to struggling UK lenders in the event of the break-up of the single currency.
He also said the Bank was ready to print even more money to kick-start Britains faltering recovery.
But any downgrade would be a major embarrassment for the Chancellor who has staked his political and economic reputation on protecting the UK from the storm raging in the eurozone.
It would push up borrowing costs for the Government, businesses and households threatening to tip the country back into recession. The report comes days after a war of words erupted between Paris and London over the relative health of the French and British economies.
France is braced for an imminent downgrade of its AAA score, having seen its outlook cut to negative.
Bank of France Governor Christian Noyer said last week that Britains rating should be cut first.
Last nights Moodys report suggested this was highly unlikely.
But it said: The UK faces formidable and rising challenges. The significant increase in the governments deficit and debt stock since 2008 has eroded its ability to absorb further shocks without rating implications.
Moodys warned Britains rating could be cut if Mr Osbornes plans to cut the deficit are blown off course by weak economic growth.
It added: The outlook on the rating is likely to be sensitive to future developments in the euro areas debt crisis, even though the UK is not a member of the monetary union.
Failure to get to grips with the crisis in the eurozone could result in widespread downgrades throughout the EU, the report said.
A Treasury spokesman said: The Governments deficit reduction plan has helped restore confidence in the UK economy and keep interest rates low.
However, as Moodys report points out, the UK is not immune to the problems facing our trading partners in the euro area.
The crisis is having a chilling effect across Europe and it is important that the euro area continues to take decisive action to fix their problems.
Bank of England deputy governor Mr Bean brushed off the recent attack by Mr Noyer on Britains AAA rating.
Ahead of a meeting with his French counterpart in Frankfurt today, Mr Bean said: It wasnt a dig at the UK, it was more a dig at the ratings agencies. On the eurozone, he added: I dont want to put probabilities on
it breaking up, but it is clearly a worrying situation. Countries eventually may feel that they are better off outside the eurozone than in it.
One thing that is important to stress is that it is not easy for a country to leave. It is quite a disruptive thing.
He also warned that if Greece ditched the euro there would be a run on Greek banks and bankruptcy for Greek businesses as the new currency plunged in value.
Mr Bean added: Clearly you would expect us to plan for the worst, he said. We hope for the best but plan for the worst. If there are serious storms coming from across the Channel that we have to cope with, there are a number of things we can do.
UK banks dont have very heavy exposures to the troubled parts of the eurozone such as Portugal, Ireland, Italy, Greece and Spain but we would have exposures to French and German banks which have more significant exposures, so there could be linkages there.
In those circumstances, we would provide temporary loans to banks that are in difficulty. We have various facilities, and introduced a new one just a couple of weeks ago as a precaution.
'Its not needed at the moment, but if we get into difficulty, we have got it there.
We are also encouraging banks build up their capital by not distributing too much of their profits as dividends or bonuses.
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