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Sterling 'under pressure following downgrade'

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Sterling under pressure following downgrade

The pound has come under pressure today (February 25th), following the UK's loss of its top AAA credit rating from the Moody's agency.

This is likely to have an impact on overseas money transfer, as the cost of imports are likely to increase, while upward pressure will be placed on the inflationary measures.

Shadow chief secretary to the Treasury Rachel Reeves warned that this could have a very negative effect on the economy.

Speaking to the BBC, she said: "I think the prospect of the pound being weaker is actually very bad news for the economic recovery - and very bad news for families who are already struggling with rising gas and electricity prices, rising petrol prices, rising transport prices and for pensioners as well, who've seen those essentials go up. It's really, really tough for them right now."

The news sparked debate over the extent to which financial markets should give credence to ratings agencies.

Business secretary Vince Cable dismissed the development as being a largely symbolic one, describing it as being akin to background noise that the government simply has to take into account.

He dismissed Moody's and other ratings agencies in general as having a poor track record when it comes to economic and corporate forecasting.

Global head of research at Tullett Prebon Dr Tim Morgan echoed these sentiments in a blogpost.

He acknowledged that it is tempting to read signs into the downgrading, but claimed that it is not worth attaching too much importance to the Moody's rating.

However, the ratings downgrade does come at a time when the UK is continuing to struggle with a generally poor economic climate.

Asset management firm Barings recently warned that the potential for recovery might not be sustainable in the long term.

Indeed, it was suggested that recovery is being muted in the short term by recent tax rises.

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