The government has sent a clear message to the European Commission that Britain will not pander to their demands for more aggressive action towards the growing UK budget deficit.

The Chief Secretary to the Treasury, Liam Byrne has said "We think the EU has got the judgment wrong".

He went on to say that cutting £20bn by the period 2014-2015 could be a cut too far and cause great concern with the potential damage it would inflict on public services. Whereas cutting the deficit by half over a four year period would be less damaging whilst not falling into the category of recklessness.

This reassurance by Liam Byrne helped the pound recover some ground after plunging on the recent statement from the EU which slated Labour's fiscal plans to manage the debt deficit.

Moody's ratings yesterday gave the markets a few shaky moments by confirming Britain was in no immediate danger of losing it's coveted AAA status whilst shining an uncomfortable light on the extent of British debt and the measures that need to be taken to hold onto the AAA status through maintaining its good reputation for honouring debt.

The UK has previously had one of the best reputations in the world for it's ability to manage debt and the up and coming general election results will give the markets a clearer insight into the methodology, time-frame and commitment by Britain to tackling its growing deficit.

As Moody's point out, the five major states with AAA ratings to protect, the US, UK, Germany France and Spain are all walking a tightrope between losing the rating or severely testing social cohesion. Pierre Cailleteau, the chief author of the Moody's report, said "We are not talking about revolution, but the severity of the crisis will force governments to make painful choices that expose weaknesses in society,"

But the report went on to say that the UK has been slow to rise to the challenge and may find the limits of the AAA rating more quickly than other countries. But according to the Treasury UK debt has an average of 14 years to run, which is double that of other AAA rated countries. Roll-over risk is therefore limited it says so the UK has plenty of time to rein the debt in.

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