UK loses top AAA credit rating for first time since 1978
It is thought the downgrade will not have an adverse impact on the government's ability to borrow
The UK has lost its top AAA credit rating for the first time since 1978 on expectations that growth will "remain sluggish over the next few years".
The ratings agency Moody's became the first to cut the UK from its highest rating, to Aa1.
Moody's said that the government's debt reduction programme faced significant "challenges" ahead.
Chancellor George Osborne said the decision was "a stark reminder of the debt problems facing our country".
"Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it," he added.
"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."
In announcing the ratings cut, Moody's cited 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".
It added that the UK's huge debts were unlikely to reverse until 2016.
The UK's net sovereign debt was the equivalent of 68% of the country's annual economic output, or GDP, at the end of last year.
All three major credit agencies last year put the UK on "negative outlook", meaning they could downgrade its rating if performance deteriorates.
Difficult road ahead
The UK has had a top AAA credit rating since 1978 from both Moody's and S&P.
In his Autumn Statement in December, Mr Osborne acknowledged public finances were taking longer to rectify than planned, and admitted he would be forced to extend austerity measures by at least another year.
Germany and Canada are the only major economies to currently have a top AAA rating - as much of the world has been shaken by the financial crisis of 2008 and its subsequent debt crises.
A downgrade of a credit rating does not necessarily substantially damage the ability to borrow.
The US - the world's biggest economy - was downgraded from its AAA rating last year, a move that has not materially changed its borrowing costs.
The UK has experienced a double-dip recession since 2008. It grew in the third quarter of last year - boosted by the impact of the Olympics, but shrunk again by 0.3% in the last three months of 2012.
Earlier this month, the Organisation for Economic Co-operation and Development said the Bank of England should be ready to inject more money into the economy to boost growth.
The Bank has so far pumped £375bn into the financial system, creating money to buy-back government bonds.
George Osborne: "Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it". 

The US-based  agency  announced on Saturday their decision to downgrade their rating of the United Kingdom economy from AAA to AA1 - stating that lack of economic growth and austerity continuing into 2016 are to blame.

Moody's Investors Service said in a statement: "The main driver underpinning Moody's decision to downgrade the UK's Government bond rating to AA1 is the increasing clarity that, despite considerable structural economic strengths, the UK's economic growth will remain sluggish over the next few years due to the anticipated slow growth of the global economy and the drag on the UK economy from the ongoing domestic public- and private-sector deleveraging process".

, the , said that the move to lower the credit rating was a "stark reminder" of the debt problems that the country is facing and that the government is planning to stick to it's original deficit reduction plan.  He went on to say "Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it". 

The British economy shrank by 0.3% in the final quarter of 2012 and output remained flat throughout last year - the economy would have to grow in the first quarter of 2013 in order to avoid a recession. The  warned George Osborne last month that he should slow down the rate of his deficit reduction and austerity programme if Britain entered a triple-dip recession.

The  has said that the government must reduce the number of spending cuts and focus on growth. , the , said: "This credit rating downgrade is a humiliating blow to a Prime Minister and Chancellor who said keeping our AAA rating was the test of their economic and political credibility."