13 Jun

Will UK Credit Rating be Downgraded … and Does it Matter?

Many people believe that credit rating agencies are going to downgrade Britain’s credit rating. Is this true? And if so, what might that mean for the country?

What are credit rating agencies?

Credit rating agencies for countries are essentially a bigger-scale version of personal credit rating agencies. They assign a credit rating to the country and then lenders make their loan decisions based on this information. If a country has a low credit rating then it’s harder for them to get low-interest loans.

How are country credit ratings determined?

The credit rating agencies look at things like the debt that a country has, the country’s current and projected economic growth and their tax situation. They use this information to assign a rating that reflects the country’s likely ability to repay loans.

Countries are being hit hard

Recently several countries have had their credit ratings lowered. Greece has been the biggest example with Spain and Portugal following closely behind. Investors using this information will now increase their loan rates to these countries. This can have an additional negative effect on the country’s economic situation.

Will the UK be downgraded?

The UK economic situation has been tough and many people believe that it’s next in line for a credit rating downgrade. However, the credit rating agencies have taken some serious flak for downgrading the ratings of the aforementioned three countries. As a result, they may hold off on downgrading the UK for the time being. It is predicted that the downgrade will come eventually but it’s not likely to be immediate.

Does it matter if the UK is downgraded?

Whether or not this matters is debatable. It can have a definite negative impact on the UK’s economic situation moving forward if the country’s credit rating is downgraded. On the other hand, investors are aware of problems even if the downgrade doesn’t occur so loans may be affected even if the country’s credit rating doesn’t change.

How the general election plays into all of this

The UK government needs to get a handle on the country’s economic situation. They need to prove their credit worthiness and improve their status among investors, regardless of whether or not the downgrade occurs.

Source: http://money.uk.msn.com/markets/articles.aspx?cp-documentid=153340671

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