Britain's Credit Rating Downgraded By Lending Agency Moody's

Britain has had its cherished credit status downgraded by US agency Moody's.

In a major blow to George Osborne's economic strategy, the agency reduced Britain's debt rating from AAA to AA1, forecasting "sluggish" growth over the next few years.

Moody's is one of the three big credit agencies, and the other two, Fitch and Standard & Poor's, could now follow suit.

The news is a blow to Chancellor George Osborne

Immediately after the news broke on Friday night, Osborne released a defiant statement, saying the downgrading would "redouble" the government's resolve to cut the deficit.

But it will provide plenty of ammo for Ed Balls and Labour, ahead of the crunch budget on March 20.

The opposition has been critical of the extent of austerity imposed by the coalition - but the Tories said Labour's approach would have made the situation worse.

The downgrade by one notch could make it more difficult for Britain to borrow on international markets.

Moody's pointed to the "continuing weakness in the UK's medium-term growth outlook, with a period of sluggish growth which Moody's now expects will extend into the second half of the decade."

Following the announcement, the Chancellor said: "Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it.

"We will go on delivering the plan that has cut the deficit by a quarter, and given us record low interest rates and record numbers of jobs.

"As the rating agency says, Britain faces huge challenges at home from the debts built up over many many years, and it is made no easier by the very weak economic situation in Europe.

"We are not going to run away from our problems, we are going to overcome them."

Labour MP John Mann, a member of the Treasury Select Committee, branded Osborne a "busted flush".

He said: "He is a Chancellor with no alternative plan and a failure now officially marked on his chancellorship."