Afternoon:
9°c
The pound tumbled tonight and stock markets around the world slammed into reverse after rating agency Moody's cast doubt over the financial strength of the UK and the US.
Moody's Investors Service said the UK and US could "test the AAA boundaries" because of the dreadful state of the public finances in both countries.
It said the UK and the US merely had "resilient" AAA ratings as opposed to the "resistant" top ratings of Canada, Germany, Switzerland and France.
The pound fell 1.63 cents against the US dollar to $1.6283 and 0.56 cents against the euro to �1.1037.
Stock markets were also on the slide with the FTSE 100 index down 76.25 points to 5234.41 in London and the Dow Jones Industrial Average off 124.10 points to 10,266.01 in New York.
The Moody's warning came as Chancellor Alistair Darling put the finishing touches to tomorrow's Pre-Budget Report (PBR).
The Government is set to borrow around £180 billion this year - nearly 13% of gross domestic product, the highest in the G20 - as tax receipts plummet and spending soars.
Darling will use the PBR to again pledge to halve Britain's debt over four years through spending cuts and tax increases.
Critics want the Chancellor to act faster to reduce the debt level.
But others claim drastic cuts now would choke the recovery and plunge the UK into a deeper and longer recession.
Darling said he would rather suffer criticism for removing support for the economy too late than too early.
Reader views (16)
@Georgie: "It gets worse and worse"
As I write this the US$ rate is 1.629; the 12-month low (Feb-Mar) is 1.375 and 12-month high 1.689. If you're British, your $200 NYC hotel room will now cost you 18% less than it would have at the low.
Now if you're talking about the Sterling: Australian dollar rate the comment is all but true ... unfortunately in my case.
- Tonyb, Melbourne, Australia, 08/12/2009 21:50
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Brown's nemesis?
- Frank, Bournemouth, England, 08/12/2009 20:53
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Going into the Euro would remove two safety valves as the UK would lose control over both interest rates and exchange rates! Anyone who thinks that is a good idea knows absolutely nothing about economics. The bond and FX markets will discpline government more effectively than anything else as they cannot be manipulated by any political party. They buy or sell dispassionately rewarding good policies and punishing bad policy. It has happened before and will happen again.
- James Macleod Ritchie, Oyster Bay Cove, 08/12/2009 20:27
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It can only be a matter of time until British interest rates are increased by a lot. That will be the point when real problems begin.
- Simon Walters, London, 08/12/2009 19:19
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Halve the deficit you mean! Current plans foresee the debt returning to current levels as a % of GDP sometime after 2050.
- Andrew Piercy, Northampton UK, 08/12/2009 18:49
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Quite right. Jay. That's the same Moody's which warned us of the impending financial crisis, isn't it? Not. They should be downgraded to ZZZ, as they were asleep on the job.
- Ralph, London, 08/12/2009 18:38
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New Labour kicks some backside even by Labour standards. To preside over 15 years of massive economic expansion, manage to blow the windfall of tax revenues (surely, only on ... frontline services), save nothing and leave the contry in debt for two generations. One has to be seriously impressed.
- Legal Immigrant, London, 08/12/2009 18:07
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Should anyway pay attention to the rating agencies given their lamentable failure to spot the massive problems that have got us all in this mess in the first place? They really are a joke.
- Alan, London, 08/12/2009 17:54
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..better placed than any other economy, yes right Gordon! Its will never change Labour simply cannot resist spending other people's money largely on creating a client state. We simply cannot afford to let these people in power again...ever.
- Simon, London, 08/12/2009 16:14
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The pound will fall further after the election when the govt let inflation run rampant to erode the real value of all this debt they have incurred
- Matt Knight, Ware, 08/12/2009 15:22
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The only course of action for the United Kingdom is for total integration with the European Union and the adoption of the common currency-The Euro. The UK can no longer claim to be a totally independent country and as soon as the sceptics realise this there is no way forward!!!
- Arthur Lincoln, Roeselare, Belgium, 08/12/2009 15:02
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The rating agencies are hardly covered in glory themselves, over the financial crisis, are they?
- Jay, London, 08/12/2009 14:54
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It gets worse and worse. This has to stop and Crash Gordon with Dizzy Darling needs stepping down. We need an election now!
- Georgie, Islington, London, 08/12/2009 14:17
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Just wait until the 5% of the population that pays 45% of the taxes decide to move to elsewhere. What the socialists have never been bright enough to work out is that you require someone to generate wealth before you can redistribute it.
- Ab, St Albans, 08/12/2009 13:56
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I despair. You would have thought that labour might have seen what Mugabe did to Rhodesia and learned a thing or two. Next year we will be carrying our cash round in wheelbarrows.
- John Bell, Nottm, UK, 08/12/2009 12:29
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Lets face it while this government is in power we are on the relegation road to the lower leagues.
- Mr S.Port, London, 08/12/2009 09:33
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