Dagong Global Credit Rating Company downgraded Britain's sovereign credit rating to A+ from AA- with a negative outlook for its solvency. The UK got downgraded by the Chinese Dagong rating agency on the same day that Moody's announced a review on 14 of U.K.'s largest financial institutions.
According to the company's statement, the downgrade reflected the deteriorating debt repayment capability of the UK and the difficulty in improving its sovereign credit level in a moderately long term in the future.
Dagong sees relatively low growth and high inflation. This is simply another institution pointing out the new global phenomenon, Stagflation.
It also stated that because of the slow growth, the budget deficit would still overshoot the government's 7.9% to 9% target.
The three main western rating agencies, Moody's, Standard & Poor's and Fitch still have both the UK and the US as the top AAA rating. It has been well documented how Dagong has criticized all three agencies as causing the financial crisis by failing to properly disclose risk.
Even though the market reaction to this news has been muted it certainly does send a reminder to the market that all is still not well in the UK.
Regardless of both negative news events, the GBP/USD is up on the day, 58 pips @ 1.6180. If both stories gain traction and risk appetite continues to dwindle later in the week, we can see GBP/USD easily becoming the biggest decliner of the week.