Following the UK credit downgrade and Italian elections, our Investment Solutions team has written two ebriefs to give our perspective on how investors and markets will be affected.
The UK credit downgrade
Ratings agency Moody’s has cut the UK’s credit rating from Aaa to Aa1. The other two big rating agencies, Fitch and Standard & Poor’s, also have a negative outlook on their AAA ratings so further downgrades must be viewed as likely. This is no surprise given the UK’s debt burden and weak growth, so will it actually change anything?
In this briefing, RSM Tenon’s Investment Solutions team looks at the importance of the Aaa rating, how the UK compares with other major economies and what the downgrade means for markets.
The current ruling party, blamed for unpopular austerity measures, has been pushed into fourth place in an election where no one party has achieved a majority. Why does this matter? Italy is Europe’s third largest economy and the third biggest bond market in the world. It is a bellwether for how European electorates view the hard reality of fiscal reform – and too big to bail out if those reforms fail. Ultimately, we expect that despite the Italian electorate’s firm rejection of austerity, any coalition that forms will have no option but to continue the measures, albeit loosened to encourage growth.