UK credit rating downgraded from AAA to Aa1 THE UK government's top-grade AAA premium credit rating was downgraded to AA1 by a major credit ratings agency on Friday night. Moody's Investors Service said it had taken the action because of a rising debt problem and the expectation that growth would "remain sluggish over the next few years." The pound fell from about 1.525 against the US dollar to 1.518 when the news broke. Chancellor George Osborne, who made it a key election pledge to safeguard the credit rating, said Britain would not "run away from its problem" and the move was a "stark reminder" of its debt problems. The downgrade is a major blow for Mr Osborne, who has been coming under increasing pressure to take action to stimulate the economy. He has used maintaining the top gold-plated credit rating for government bonds as a key argument for the austerity programme. However, Labour has insisted that withdrawing demand from the economy has put it more at risk by stunting growth. The ratings agency is the first to lower the UK from its highest rating. It is also the first time Britain has lost its AAA crown since ratings were given to the UK in the 1970s and is regarded as a blow to the UK's reputation. The ratings agency also cut the Bank of England's AAA rating by one notch, also to AA1. The move comes three months before Mark Carney, currently governor of the Canadian central bank takes over the helm. Moody's said the sluggishness it had cited was due to the anticipated slow growth of the global economy and the drag on the UK economy from the domestic public- and private-sector de­leveraging process. Moody's said Britain's debt-reduction programme faced "challenges" ahead and its huge debts were unlikely to go into reverse until 2016. The agency had warned about the UK's growth prospects last year. Moody's said "subdued" growth prospects and a "high and rising debt burden" were weighing on the British economy. It said, though, that "the UK's creditworthiness remains extremely high" and its outlook was stable. Moody's said 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." Financial experts said that while the Westminster government would not welcome the action taken by Moody's, the move was not entirely unexpected, as the government was in the midst of a programme of spending cuts to reduce the nation's hefty deficit. Other experts said that a flat-lining economy had already led the government to downgrade its own estimates of future growth. All three of the big rating agencies - Moody's, Standard & Poor's and Fitch - had placed Britain's rating on negative watch, as the economy continues to struggle. In December, fellow agency Standard & Poor's became the last of the three main rating agencies to put the UK's top AAA rating on "negative outlook" and said that it might lower its rating if the UK's economy worsened. Germany and Canada are the only major economies to currently have a top AAA rating. Mr Osborne, said the downgrade was "a stark reminder of the debt problems facing our country," with a debt accumulated over the years exacerbated by Europe's economic crisis. "Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it," the Chancellor said, promising to press on with debt-cutting. "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," Mr Osborne said.