LONDON, Feb. 23 (UPI) -- U.S. rating agency Moody's Friday downgraded its rating of British bonds from AAA to Aa1, sparking criticism from the Labor Party over economic policies.
Chancellor of the Exchequer George Osborne said the downgrade will not change the coalition government's economic policy, The Daily Telegraph reported. But Shadow Chancellor Ed Balls called the downgrade an indictment of current economic policies.
"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," Balls said.
"But what matters is the underlying economic reality and what has happened is the credit rating agencies have caught up with the facts," the British Broadcasting Corp. quoted Balls as saying.
Criticism came from other corners, as well. "The decision to downgrade the U.K.'s credit rating confirms the utter failure of the U.K. government's economic strategy," said Scottish Finance Secretary John Swinney.
Moody's predicted the British economy will "remain sluggish over the next few years." The agency said Britain's deficit will remain high at least through the next three years.
But Moody's also said the country's "creditworthiness remains extremely strong."
"Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it," Osborne said. "We will go on delivering the plan that has cut the deficit by a quarter, and given us record low interest rates and record number of jobs."
Moody's, Standard & Poor's and Fitch last year warned Britain's credit rating might be downgraded by putting the country on "negative outlook." Moody's was the first to issue a downgrade.
In its announcement, Moody's said there were three "drivers" for the downgrade: "The continuing weakness in the U.K.'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; the challenges that subdued medium-term growth prospects pose to the government's fiscal consolidation program, which will now extend well into the next Parliament; and, as a consequence of the U.K.'s high and rising debt burden, a deterioration in the shock-absorption capacity of the government's balance sheet, which is unlikely to reverse before 2016."