George Osborne: We'll redouble effort to cut debt after AAA loss 25 February 2013 Last updated at 17:20 George Osborne: "Rating decision is a warning to those who do not want to deal with debt" George Osborne has said the government must "redouble its efforts" to tackle UK debts despite the loss of the UK's AAA credit rating. The chancellor said the downgrade was because of slow global growth and the difficult process of reducing debt, which he said must continue. He was responding to an urgent Commons question from Labour, who say he is in "complete denial" about the situation. Sterling fell to a two-and-a-half year low against the dollar before rallying. The chancellor said there had not been "excessive market volatility" and the government would not deviate from its economic path. Mr Osborne said he accepted the downgrade - made by ratings agency Moody's on Friday - and the reasons for it. Burt he blamed the weak global outlook and the last Labour government's economic legacy and said the situation would be "much worse" if the coalition abandoned its efforts to reduce borrowing. Stark reminder He told MPs the downgrade was a "stark reminder" about the level of debt that the coalition government had inherited from its Labour predecessor and ministers were not going to "run away" from the problem. He said the AAA credit rating, which he has repeatedly said since taking office was a key benchmark of the UK's economic credibility, was important but the economy was "tested" on a daily basis in the financial markets - including on Monday - and had "not been found wanting." Mr Osborne said it was "patently ludicrous" that the UK's debt problems could be solved "overnight" and he said the deficit was down by a quarter since the election and interest rates on borrowing for both the government and consumers remained low. "That ultimately is the choice for Britain - either we can abandon our efforts to deal with our debt problems and make a difficult situation very much worse or we can redouble our efforts to overcome our debts and make sure this country can earn its way in the world," he said. Cover for cuts Ed Balls: "Downgraded chancellor has failed his own economic tests" But shadow chancellor Ed Balls said Mr Osborne had failed the "first economic test" he set himself as chancellor and was himself now "downgraded." Mr Balls accused his counterpart of using the ratings agency as "cover for his accelerated tax rises and spending cuts," which had proved to have failed. "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," he said. What we see today is that he is in complete denial and offering more of the same failing medicine even now Moody's agree sluggish growth is the main problem. Deficit challenges Mr Osborne, who will deliver his fourth Budget next month, faced calls to resign from a handful of Labour MPs during his Commons statement. However, Tory MPs rallied behind the chancellor and Andrew Tyrie, chair of the Treasury select committee, said the downgrade was of "limited value" given the ratings agencies "dismal record" of corporate and economic forecasting in the past. Moody's marked down the UK's credit rating from AAA to AA1 on Friday, the first time this had happened since 1978, blaming the state of the global economy and the impact of public and private sector retrenchment. The agency said "sluggish" economic growth over the next few years, likely to result in lower tax revenues and higher spending in some areas, would pose significant "challenges" to the speed with which the annual deficit and the size of UK's debts as a share of GDP could be reduced. The government has extended its timeframe for eliminating the structural deficit beyond the next election due in 2015 but Moody's believes the UK will ultimately meet its objective given the "political will" to do so and the "fundamental underlying" strengths of the economy. But Labour say current austerity measures will result in more than £200bn in extra borrowing and without a change in policy focused on targeted tax cuts and investment in infrastructure, growth will continue to stall and debts will rise. The UK is at risk of slipping back into recession for the third time in five years, with growing contracting in the final quarter of 2012. But ministers say there are some positive signs such as the falling unemployment rate and increases in export growth and business start-ups.