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Threat to UK AAA rating

UK retail sales fell in May as consumers demonstrated their nervousness about the future. The British Retail Consortium said that the figures dropped by 2.1% compared with May 2010.

Chancellor George Osborne said “I welcome the IMF’s continued strong support for our overall macroeconomic policy mix, including our deficit reduction strategy,” even though the IMF predicted the UK economy would grow 1.5% in 2011, down from its forecast of 1.7% in April and 2% in November 2010

Today has been about comments made by Moody’s, the rating agency, which said that weak UK growth combined with slippage in the fiscal target could jeopardise the UK’s AAA status.

The Royal Bank of Australia left it interest rates unchanged at 4.75% following weak gross domestic product which contracted by 1.2% in the first quarter of this year. Mr Glen Stevens said in a statement “The floods and cyclones over the summer have reduced output in some key sectors.”

It is reported that French President Nicolas Sarkozy will use the French veto to block a rate reduction, unless Ireland agree to raise its low rate of corporation tax in return for a 100 basis points cut on the rate charged on some 45 billion Euros.

The Federal Reserve chairman Mr Bernanke said “the US economic growth so far this year looks to have been somewhat slower than expected,” but that it should pick up in the second half of 2011. He also indicated that the Federal Reserve is not contemplating loosening the fiscal grip any time soon.

With everything considered Sterling is under severe selling pressure and is down against all sixteen most actively traded currencies. Sterling dropped below 1.12 against the Euro, just below 1.64 against the US Dollar, and briefly dropping below 2.00 on the New Zealand Dollar before bouncing back up (this could once again drop tonight as the markets expect the Royal Bank of New Zealand to increase interest rates following higher-than-expected inflation).