UK's AAA credit rating downgraded by Moody's

Moody's Investors Service is the first to cut the UK's top AAA credit rating down a notch to Aa1, based on its expectation that growth will "remain sluggish over the next few years". 

Moody's said that the UK's huge debts were unlikely to reverse until 2016 and that the country's debt reduction programme faced "challenges" ahead. 

Fellow agency Standard & Poor's in December became the last of the three main rating agencies to put the UK's top AAA rating on "negative outlook" and said it may lower its rating if the UK's economy worsened.

Germany and Canada are the only major economies to currently have a top AAA rating.

Osborne said in a statement that the downgrade was "a stark reminder of the debt problems facing our country, and the clearest possible warning to anyone who thinks we can run away from dealing with those problems.

"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."

Despite his resolution not to waiver from the coalition Government's stringent austerity programme, the downgrade is a major setback for Osborne, who has been coming under increasing pressure to take action to stimulate the economy.

The chancellor has used maintaining the top credit rating for government bonds as one of the key arguments for the austerity programme.

However, Labour has insisted that withdrawing demand from the economy has put it more at risk by stunting growth.