Newsbeat guide to.... UK's credit rating downgraded

By Amelia Butterly
Newsbeat reporter George Osborne says the government's economic recovery plan will continue

The UK has lost its AAA credit rating for the first time since the 1970s.

Moody's, one of the three biggest credit rating agencies in the world, has downgraded its assessment of the UK economy.

It means they have a more negative view of how long it is going to take the country to recover from the financial downturn of the last few years.

Chancellor George Osborne will be putting forward a new budget for the UK in the next few weeks.

Will this change in rating have an effect on the country's economy? And what does it mean for people living in the UK?

What is a credit rating?

Credit ratings come from agencies, who sell financial information to investors.

Each agency uses a different set of scores to rate potential investments.

The main rating used by Moody's goes from AAA down to C. The UK was moved down one step on the scale from AAA to Aa1.

When they assess countries, the agencies are looking into their ability to pay back money which has been lent to them.

The less likely a country is to be able to pay back its debts, the lower the rating.

What does a change in credit rating mean for the UK?

Moody's has changed its rating for the UK as it does not think the government will be able to tackle the deficit as quickly as originally thought.

A deficit is the debt created when a government borrows money to cover the difference between tax revenue coming in and payments going out.

A change in credit rating may make the pound a bit weaker, which would potentially help people exporting goods to other countries, but may make imported goods more expensive.

It could also make it more expensive for the UK to borrow money in the future.

To people in the UK, it may mean exchange rates getting slightly worse and petrol prices rising.

There were some positives though as Moody's did describe the UK as still being a highly competitive economy.

How will the new credit rating affect the government?

Moody's Investors Service, a bond credit rating agency, is based in New York

Labour has already described it as a "humiliating blow" for the government.

In the past George Osborne has used the potential for a credit downgrade as a reason for making cuts in public spending, however this has now happened.

It was seen as an achievement for the government that the UK was one of only three major industrialised nations to maintain an AAA rating from all agencies.

Now only Canada and Germany can claim that status.

George Osborne says that the change in rating will not affect the direction of his policies.

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