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.
In an effort to keep interest rates low, the Bank of England will pump another 50 billion pounds into the economy. The U.S. currency equivalent of close to $80 billion to be injected is an attempt to stave off another potential recession.
Additionally, the Bank of England will keep interest rates at 0.5 percent to turn around a shrinking economy. Over the past year, England has seen growth in manufacturing and improved industrial production, much like the U.S.
The decision was made in light of a diminished threat of inflation. Economic inflation has dropped from a high of 5.2% in the Fall, to 4.2% in December. Many economists expect inflation to fall below 2% at some point in 2012. Still, the top economist at the Bank, Spencer Dale, suggested that the decline may not be as precipitous as some expect.
At what point will China own a majority stake in the G7 group of countries? The Italian Government is looking East to finance its budget deficit. Italian Finance Minister Giulio Tremonti and Vittorio Grilli have recently met with directors of China’s sovereign wealth fund to seek a cash injection to help meet budget pitfalls.
Italy ranks second to only Greece at the bottom of Eurozone debt to GDP ratio, and the European Union is calling for austerity tactics.
At the same time, all is not well in China. The country’s inflation rate just hit a three year high.