UK Downgrade Weighs On Pound

Reuters Business Report - City traders in London were braced for a rough ride after the UK lost its triple A credit rating.

And within hours sterling had fallen to a two-and-a half year low against the dollar and a 16 month low against the euro.

Combined with a grim economic outlook the fall is unlikely to be the last.Neal Kimberley, Reuters FX Analyst,

"Everybody who trades Sterling knows she goes up by the staircase and she goes down by the lift shaft. And she standing on the edge of that lift shaft now, she's on the twentieth floor."

Economically the one-notch cut is of limited significance - most of Europe, Japan and the United States have already suffered the same fate.

But this first ever UK downgrade is a major blow to Finance Minister George Osborne.

His strict austerity plan has attracted much criticism.

And he's still refusing to change course.

George Osborne, British Finance Minister,

"The UK's rating could be downgraded further if there is a reduced political committment to fiscal consolidation. You will not get that reduced committment from this government."

But investors say the downgrade underscores Britain's predicament.

They see a debt-ridden stagnating economy kept afloat by a central bank printing new money to buy government debt.

Opposition politician Ed Balls.

Ed Balls, Shadow Chancellor,

"He said in his manifesto in 2010 his number one objective was to secure triple A for Britain and he believed he would do that by bigger tax rises and spending cuts but it's failed. He's choked off the recovery, borrowing's up, families are suffering and even the credit ratings agencies are now saying it's failed."

Osborne can take comfort from the fact that Moody's gave the UK a stable outlook - whenFrance and the U.S were negative.

But that won't help sterling in the short term.

The Bank of England is thought to be considering more monetary easing following the downgrade which will put even more pressure on the pound.