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Sterling downgrade bad sign for the economy

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Shadow chancellor of the exchequer Ed Balls has argued that the recent decision by Moody's to downgrade the UK's credit rating reflects very badly on the nation's economy.

He described the development as a "humiliating blow" to prime minister David Cameron and chancellor of the exchequer George Osborne.

Indeed, Mr Balls noted that upon entering office, the pair had stated that maintaining the UK's AAA rating was the key barometer of their economic and political credibility.

Despite the negative news, it has been suggested that the full picture of the national economy might be more favourable than it would appear to be on the surface.

The Second Estimate of GDP, Q4 2012 report from the Office for National Statistics recently indicated that the country enjoyed better than expected growth in 2012.

Growth for the year had previously been thought to have stood at zero - but this estimate has now been revised to indicate an expansion of 0.2 per cent.

This revision comes from improved figures at the beginning of 2012 - specifically for the first quarter, which was lifted from a 0.2 per cent contraction to a 0.1 per cent contraction.

Mr Balls acknowledged that it would be an error to place too much stock on statements from Moody's - or indeed any other credit ratings agency.

The minister also noted that the verdict does not change the fact that Moody's have made major misjudgements in recent years - for instance giving top ratings to US sub-prime mortgages before the global financial crash.

"But what matters is the economic reality that the credit rating agencies are responding to," he remarked, adding: "Moody's themselves say the main driver of their decision is the weak growth in Britain's economy.

"Their judgement is in response to nearly three years of stagnation, a double-dip recession, billions more borrowing as confirmed this week and broken fiscal rules."

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