Despite downgrade, UK officials vow to press on with austerity

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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.

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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."