Downgrade hits at Osborne's credibility George Osborne has suffered his biggest blow yet as chancellor after the UK lost its triple-A rating, which he had repeatedly promised to protect. Moody's, the rating agency, downgraded the UK one notch to Aa1 late on Friday night in the most serious critique yet of the government's entire economic plan. The chancellor pledged to plough on with the coalition's cuts programme despite the move, saying: "Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it." But Moody's" decision is highly politically damaging for the chancellor, who has pinned his credibility on retaining the trust of the bond markets. Last July, he hailed the UK's credit rating, calling it "a reminder that despite the economic problems we face, the world has confidence that we are dealing with them." The Conservative manifesto in 2010 promised: "We will safeguard Britain's credit rating with a credible plan to eliminate the bulk of the structural deficit over a Parliament." With the current structural deficit now likely now to remain until 2018 at the earliest, both of these promises have now been broken. Ed Balls, Labour's shadow chancellor, last night said: "This credit rating downgrade is a humiliating blow to a prime minister and chancellor who said keeping our triple-A rating was the test of their economic and political credibility." Mr Balls said: "Moody's themselves say the main driver of their decision is the weak growth in Britain's economy. Their judgement is in response to nearly three years of stagnation, a double-dip recession, billions more borrowing as confirmed this week and broken fiscal rules. This is why the chancellor is fast running out of credibility. Britain becomes the latest in a long line of countries to lose its triple-A rating, with France and the US having recently undergone a similar fate. But Treasury sources pointed out that both of those countries were downgraded a notch and given a negative outlook, whereas the UK has been moved to a stable outlook, reducing the possibility that the chancellor will have to face a further damaging downgrade in the near future. The rating agency delivered a gloomy forecast of the UK's future growth, predicting that the economy would continue to stagnate for at least another two years. Its statement said: "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." Moody's added that the downgrade was a result of "the UK's high and rising debt burden, [and] a deterioration in the shock-absorption capacity of the government's balance sheet, which is unlikely to reverse before 2016." It comes after a disappointing auction of the 4G mobile phone network made it unlikely that the chancellor would meet his promise of reducing the deficit this year. Mr Osborne insisted, however, that the Moody's analysis justified the government's fiscal consolidation programme. The rating agency said: "The stable outlook on the UK's Aa1 sovereign rating reflects Moody's expectation that a combination of political will and medium-term fundamental underlying economic strengths will, in time, allow the government to implement its fiscal consolidation plan and reverse the UK's debt trajectory." Mr Osborne said: "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. Moody's" decision is unlikely to have a material effect on the UK's borrowing rates, which have risen slightly recently in line with other AA-rated countries, but remain low in comparison to much of Europe. But it will bolster the argument of Mr Balls, who has long said the government's cuts programme risks undermining the country's creditworthiness by suppressing growth and lowering tax receipts. The issue is no longer whether this chancellor can admit his mistakes but whether the prime minister can now see that, with UK economic policy so badly downgraded in every sense, things have got to change. In the Budget the government must urgently take action to kick-startour flatlining economy and realise that we need growth to get the deficit down. If David Cameron and Mr Osborne fail to do so and put political pride above the national economic interest we face more long-term damage and pain for businesses and families. It may also add to latent tensions within the coalition government, which has so far remained publicly united behind Mr Osborne's economic programme. Some senior Liberal Democrat ministers have, however, admitted private concerns about the Treasury's unwillingness to loosen the purse strings to boost growth, and the move by Moody's is likely to strengthen their hand.