While chancellor George Osborne interpreted the report as a sign that the UK must do more to tighten its belt, many financial experts want stronger growth while others think Moody’s has acted irresponsibly.
Richard Jeffrey, chief investment officer at Cazenove
"The great irony is that this would have been a clever and useful decision if Moody’s had done it in 2005 or 2006 when the debate about public finances in the UK was first raised. Warning about a possible downgrade now is not going to have a positive effect and will only serve to frighten the markets." "As things stand people already know that growth in the UK is likely to be subdued. The ratings agency has even acknowledged that the economy is on the right track in terms of its fiscal policy so I can’t understand the decision."
"Moody’s has been such a reactive organisation that we shouldn’t pay any attention to this downgrade now. It doesn’t change anything and it is neither warranted nor helpful."
Trevor Greetham, asset allocation director at Fidelity
"In a rather muddled statement Moody's cites a weaker growth outlook as the prime driver for its decision to put the UK on negative credit watch before conceding that the austerity it recommends is itself a cause of economic weakness." "Free of Europe's fiscal pact and with its own central bank and currency, the UK has the policy flexibility to ride out the financial crisis."
"Contrary to ratings agency advice, I would support a targeted easing of fiscal policy to keep the economy moving while the consumer pays down debt. Without growth, everything becomes more difficult."
Ian Kernohan, economist at Royal London Asset Management
"Judging by gilt yields actually falling today it doesn’t seem as though the market is treating UK debt any differently following the Moody’s report." "While the report warns about growth and threats to the banking system, it also gives a number of positive reasons why the UK remains one of the best rated economies in the world. The UK is a large diversified economy with a clearly defined strategy for deficit reduction – which the US does not have – and the Government has shown a political will to strengthen the banking system."
"I don’t think growth is as bad as many analysts are predicting. Today’s inflation figures [annual rate now at 3.6 per cent] take a bit of pressure off the UK consumer and that is good news for the economy."
Azad Zangana, European economist at Schroders
"Moody’s primarily warns of a lack of growth in the medium-term for the UK and proximity to the eurozone debt crisis being the key factors behind its change in the outlook."
"However, it also warns that one of the factors that would lead to an actual downgrade would be a 'reduced political commitment to fiscal consolidation, including discretionary fiscal loosening or a failure to respond to a deteriorating fiscal outlook'."
"In our view, the change in outlook from Moody’s for the UK should be taken as a warning that any slippage in the Government’s fiscal programme must be made up for with additional fiscal tightening. At the same time, the Government is being warned that it must do more to boost growth through structural reforms."