UK to Keep its AAA Rating

Standard and Poor’s Confirms that UK will keep its AAA Rating in a Move which Leaves Forex Traders Divided

United Kingdom flagThere has been much talk of a double dip recession following the disappointing UK growth figures released earlier this week and concerns had been growing that the UK would imminently lose its AAA rating as it became only the second industrialised nation to fall back into recession.

However S&P have alleviated the fears of the market and government alike by confirming that the UK will keep its AAA rating and announcing that they believe that the UK will grow in the second half of 2012. They state the monetary flexibility stemming from the British pound sterling’s role as a global reserve currency as being a key factor in their decision, along with an increased “capacity to absorb shocks”.

The International Monetary Fund’s View

The IMF had been seen to be critical of the British government’s austerity plans over recent weeks; releasing figures that they claimed showed that the austerity measures introduced in early 2010 had cut growth by 2.5% over the following two years. Recent press conferences from the IMF chief, Christine Lagarde, seemed to indicate her support for a ‘plan B’, looking to introduce more funds into the economy in order to ‘stimulate’ growth. This plan has been backed by the Labour party, who state that continued austerity is damaging the economy by slowing growth and damaging a possible recovery.

The UK Government’s View

British chancellor George Osborne has welcomed S&P’s decision, stating that:

“The deficit has fallen by a quarter; inflation has fallen by half; employment is rising, with British businesses creating over 800,000 new jobs; and the economy is rebalancing, with Britain now exporting more to the rest of the world than Europe.

And as S&P themselves say, what would damage Britain’s creditworthiness would be relaxing our resolve to deal with our debts. We won’t do that.”

The decision by Standard and Poor to continue with the UK’s AAA rating will be seen as a key endorsement for George Osborne’s austerity plans, and appear to pit the agency against the opinions of the IMF and its outspoken chief, Christine Lagarde. Only time will tell whose analysis proves to be the most accurate, however the debate has online Forex traders divided.

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