The FTSE 100 bucks the economic gloom cited by Moody's.
The FTSE 100 index rallied 42 points to 6,354 during early London trade this morning despite the UK losing its top AAA credit rating for the first time in 35 years.
Moody's Corporation (NYSE: MCO.US) announced late on Friday that it had downgraded the country's debts by one notch to Aa1. The ratings agency cited the "key interrelated drivers" of its decision were:
"1. 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;"
"2. The challenges that subdued medium-term growth prospects pose to the government's fiscal consolidation programme, which will now extend well into the next parliament;"
"3. And, as a consequence of the UK's high and rising debt burden, a deterioration in the shock-absorption capacity of the government's balance sheet, which is unlikely to reverse before 2016."
Moody's had rated UK government bonds, or gilts, as AAA since March 1978. The agency changed the outlook on the bonds from "stable" to "negative" this time last year, citing "materially weaker growth prospects" and "higher-than-previously-expected projections for the deficit."
Major shares did not seem too upset by the AAA loss this morning, with BP up 1% at 450p, GlaxoSmithKline down 0.3% at 1,473p, Royal Bank of Scotland up 2% at 352p and Vodafone unchanged at 163p.
The pound opened this morning down a fraction at about 1.515 against the US dollar, having already dived from 1.62 since mid-January. Since the financial crisis erupted, sterling had traded mostly around the $1.60 level.
The pound also fell slightly against the euro, with this morning's £1:€1.145 rate down from a five-year high of £1:€1.28 set last summer.
While the loss of the country's AAA rating may sound alarm bells for politicians and the economy, it may not be all that bad for the stock market. As a comparison, the S&P 500 index has rallied 25% since the US lost its AAA rating during 2011.
Nonetheless, if you wish to take a cautious position with your equities, this free report reveals several blue-chip names that could survive a further downgrade to the country's finances.
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> Maynard does not own any share mentioned in this article. The Motley Fool has recommended shares in Vodafone.