Moody's was keen to reassure investors that this isn't actually a downgrade - it actually maintained the UK's AAA rating at 'stable', which means a lot has to happen before the UK is actually downgraded. But it cut its forecast for economic growth from its original 1.5% to 0.7%, which is in line with what the Office for Budget Responsibility reckons. So Moody's probably isn't that far out. Even the Treasury conceded that it's got a point. '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,' it mumbled, presumably shuffling its feet and hanging its head.
If the UK did lose its AAA rating, it wouldn't be a total disaster: after all, the US survived a downgrade earlier this year - albeit causing temporary market turmoil. But it would make life at the Treasury a lot more complicated. Not only does the UK have a lot of gravitas in the international money market because of its rating, which it's held since ratings began, but most significantly, a downgrade would automatically put borrowing rates up for the UK, adding 'tens of millions' to our yearly interest bill. Less crucially, It would also undermine Osborne, suggesting that his plans to get the economy back on track aren't quite up to standard - in Moody's view, at least.
Of course, this comes mere days after a tiff between the UK and France - or, more specifically, French central bank governor Christian Noyer, who suggested that instead of downgrading France as it had threatened, ratings agency Fitch should 'start by downgrading the UK, which has a bigger deficit, as much debt, more inflation, weaker growth and where bank lending is collapsing'. Is it us, or can we feel a certain sense of smugness wafting across the channel?
Still, it's worth pointing out at this juncture that these are the very ratings agencies that were quite happy to give sub-prime mortgage lenders AA and AAA ratings days before they collapsed in 2008, so they are by no means omniscient. In fact, they've taken to giving these kinds of warning since 2008, to give markets a chance to adjust if/when a new rating is given. That said, given the lack of reaction from markets when Fitch downgraded six of the world's largest banks last week, it looks as though investors are increasingly losing trust in them. So perhaps Osborne et al can have a relaxed Christmas after all.