LONDON -- The FTSE 100 (FTSEINDICES:^FTSE) index rallied 64 points, or 1%, to 6,355 today despite the U.K. losing its top "AAA" credit rating for the first time in 35 years.
Moody's Corporation announced late on Friday that it had downgraded the country's debts by one notch to "Aa1." The ratings agency said the "key interrelated drivers" of its decision were:
1. The continuing weakness in the U.K.'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 program, which will now extend well into the next parliament;
3. And, as a consequence of the U.K.'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 U.K. 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, with BP up 1.6%, GlaxoSmithKline down just 0.24%, Royal Bank of Scotland up 2.8%, and Vodafone up 0.64%.
The pound opened this morning down a fraction at about 1.515 against the U.S. 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 1.145 euro rate down from a five-year high of 1.28 euros 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 U.S. 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. All the shares identified are familiar companies that offer robust dividend records, defensive business qualities, and solid long-term prospects. Just click here for more details.
Maynard does not own any share mentioned in this article. The Motley Fool has recommended shares in Vodafone. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.