Britain, France, and Austria are at risk of joining several other European countries which have recently been downgraded by Moody’s. The rating agency recently downgraded Italy, Spain, Slovakia, Slovenia, Malta, and Portugal due to increasing risk of default in the wake of the European debt crisis. Moody’s now has a negative outlook on Britain’s Aaa debt. This would mark the first time Britain has been at severe risk of a downgrade.
Britain’s finance minister George Osborne called the warning a “reality check”, and emphasized the need to cut its budget deficit. “This is proof that, in the current global situation, Britain cannot waver from dealing with its debts”, said Osborne.
The Bank of England issues its economic and inflation forecasts tomorrow. Data has been disappointing lately and has fallen short of expectations. Last fall, the BOE predicted that consumer-price growth would slow to 1.7 percent by the end of 2012, below its 2 percent target.
The currency markets reacted by dropping the pound to a two-week low against the Dollar, and breaking its momentum against the Euro.