George Osborne has insisted he will press ahead with austerity measures despite the UK losing its top-rated AAA credit rating.
Dragged to the Commons by Ed Balls on Monday, the chancellor dismissed the importance of Moody's decision to downgrade the UK, arguing it had not resulted in "excessive volatility" in the markets.
And he said that rather than delivering a damning verdict on his management of the economy, the downgrade actually showed the government it needed to press ahead with public spending cuts.
"This rating decision is stark reminder of the debt problems built up in Britain over the last decade and a warning to anyone who thinks we can run away with dealing with those problems," he told MPs.
"The UK's rating could be downgraded further if there is a reduced political commitment to fiscal consolidation. We will go on delivering on the economic plan."
However Labour MPs ridiculed Osborne as he took questions in the Commons, calling for him to resign and reminding him it was he who had previously warned any downgrade would be a "humiliation".
Balls said Osborne, a "downgraded chancellor", had failed "the first economic test he set himself" was just "making it up as he goes along".
"He has gone in a weekend from saying he must stick to his plan to avoid a downgrade, to saying the downgrade is now the reason he must stick to his plan," Balls said.
"He used to say a downgrade would be a disaster, today he says this downgrade doesn’t matter – but he is still warning a further downgrade really would be a disaster.
Osborne suffered a serious hit by his own benchmark on Friday when ratings agency Moody's revised downward its verdict on the UK economy - intensifying the pressure on sterling.
Ministers have played down the impact of the change on the government's borrowing costs which had already been largely priced into the markets.
Amid intense pressure from all sides on Osborne ahead of next month's Budget, Tory backbenchers are calling for tax and spending cuts to kick-start growth.
The pound weakened during overnight trading in Asia, leaving it at a 31-month low against the US dollar and at a 16-month low against the resurgent euro.
But much of the reaction to the Moody's downgrade had been priced into markets following a run of recent poor economic updates.
In contrast, the FTSE 100 Index was unmoved by the economic gloom as a large proportion of its earnings comes from overseas, triggering potential benefits from the weakness of sterling.Suggest a correction