Moody's gives Britain AAA ratings boost

Britain's financial future looked a little less shaky today after a leading credit ratings agency said the UK's cherished AAA status was not under threat - for now.

Moody's Investors Service said it has no current intention to lower the UK's top credit rating despite widespread disappointment at the apparent timidity of plans in the Pre-Budget Report to reduce government debts.

"The outlook is stable," said Moody's senior vice-president Tom Byrne, giving Gordon Brown breathing space as the fallout from the PBR continued.

But Byrne warned there could be a cut by 2013 if the Government does not tackle the yawning deficit after the general election.

It allayed fears, at least for the present, that the UK faced expulsion from the elite club of the world's most financially stable countries because of its ballooning debts.

George Buckley, chief UK economist at Deutsche Bank, said: "Agencies generally seem willing to overlook a failure of policies to address the deficit until after the election."

Sterling rose against the dollar but fell against the euro, with the pound up 0.2 cents to $1.6299 and down 0.16 cents to �1.1036.

Gilt prices steadied after yesterday's heavy drop, which pushed yields up sharply. The yield on 10-year government bonds rose briefly today to 3.83% before easing to just below 3.81%.

Ian Stannard, BNP Paribas currency strategist, said: "The market has already come to the conclusion that the PBR was a political exercise that failed to address the concerns raised by rating agencies and by investors about the deteriorating fiscal situation in the UK."

In Wednesday's PBR, Chancellor Alistair Darling outlined plans to reduce borrowing from a record £178 billion this year to £96 billion in 2013-14, not enough to satisfy critics.

Richard McGuire, fixed income strategist at RBC Capital Markets, said: "The PBR did not come up with a credible plan to begin bringing the budget to heel. A bit more austerity would have assuaged fears over ratings agencies."

This week, Moody's put the UK's AAA rating on notice as the public finances worsen in the wake of the global crisis.

It said the UK and US merely have "resilient" AAA ratings, as opposed to the "resistant" top ratings of Canada, Germany and France.

Moody's says "resilient" nations are "AAA countries whose public finances are deteriorating considerably, but which display an adequate capacity to rise to the challenge and rebound".

Roger Bootle, economic adviser to Deloitte, said the markets should not be "fazed" by the "PBR's inaction" given the upcoming election.

He said: "The all-important announcements will come after the election, whoever wins it. This has been the Phoney Budget Report. The markets realise this."