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Sterling crisis looms after credit rating downgrade

By Western Morning News  |  Posted: February 25, 2013

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Sterling is expected to come under pressure today following the loss of Britain's gold-plated AAA credit rating.

The pound fell late on Friday after ratings agency Moody's downgraded the country to AA1 – warning sluggish growth would continue for years.

The UK currency has already come under significant pressure this year amid mounting fears of a downgrade as growth and public borrowing figures continue to disappoint, falling about 7% against the US dollar to 1.51 US dollars.

It has also fallen strongly against the euro to 1.15 as the UK's deepening economic woes contrast with increasing optimism in the eurozone and hopes the single currency will survive after the European Central Bank launched its bond-buying rescue plan.

Howard Archer, chief UK and European economist at IHS Global, said the pound would be "particularly vulnerable" after the downgrade, but said the markets had been increasingly pricing in the AAA rating loss for some time.

But the Federation of European Employers warned that Moody's decision could have a profound impact on the City of London as one of the world's top financial centres.

Secretary-general Robin Charter said: "The downgrading of the UK's credit status is a blow for the UK as a leading financial centre and the UK balance of payments is so reliant on its financial services that even a small loss in trading income could affect the value of sterling."

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