UK downgraded by Moody: Who cares?
Who cares if Moody downgrades UK at this moment? Yes, yesterday Moody's downgrades UK's AAA rating. Immediately after the announcement, the pound began loosing terrain against other currencies; but the value of the sterling was already edging down for at least 3 weeks due to the uncertainty caused exactly by people either worrying about the UK economic worsening or speculating that the AAA rating would not last this month. Therefore, although this is the first cut since the 70s, it did not come as a surprise.
A list of comments on the web (blogs & media) on the downgrade:
1) BBC: Sterling steadies after Moody's downgrades UK's AAA rating
The downgrade was "largely symbolic":
"Moody's downgrade included a warning that growth would "remain sluggish" over the next few years. The agency said the government's debt reduction programme faced significant "challenges". Jim Rogers, a long-time investment partner with George Soros, told the BBC that he expected sterling "to continue to go down further in real terms". He said he was "not optimistic" about the UK economy, but added that several economies, including Japan and the US, were also in "serious trouble"
"In terms of the real economy, there is no reason why the downgrade should have any impact... these things do not necessarily affect the real economy but they do reflect the fact that we are going through a very difficult time," he said.
2) FT Alphaville on the issue: Literally, "What took you so long, Moody's?"
3) Quartz: Moody’s downgrade of the UK doesn’t matter—so why are you reading about it?
The short version of the argument against paying too much attention to ratings downgrades is:
Ratings downgrades don’t matter to the markets. They’ve usually been anticipated and priced in beforehand (though the agencies’ advance warnings of a downgrade, i.e., putting a country on “negative outlook”, have more effect).
They shouldn’t matter to politicians. They do carry a stigma, but only because the media make such a hoopla about them. In practice, though, there’s no obvious relationship between ratings and a country’s borrowing costs. (When Standard & Poor’s downgraded the US’s debt in 2011, its bond yields fell.)
They say nothing about the risk of default. Well, not nothing; but in practice, for a country like Britain or the US—as opposed to, say, Argentina, which is used to it—a default would be so disastrous that it will do pretty much anything to avoid one. A one-notch downgrade for Britain doesn’t mean a British default has become one notch more likely; at most it’s a recognition that Britain might have to hustle a bit harder (e.g., print more money) to prevent one.
Nobody trusts the ratings agencies any more anyway.
4) Barron's Income Investing: There Goes Another Triple-A: Moody’s Downgrades U.K.