By Claire West

Chancellor George Osborne is coming under even more pressure as ratings agency Moody's downgraded the country's credit rating from AAA.

Ed Balls MP, Labour's Shadow Chancellor, responding to the credit rating downgrade 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."

Moody's Investors Service downgraded the domestic- and foreign-currency government bond ratings of the United Kingdom by one notch to Aa1 from Aaa as a result of weakness in the UK's medium-term growth outlook.

At the same time, Moody's explains that the UK's creditworthiness remains extremely high, rated at Aa1, because of the country's significant credit strengths.

These include (i) a highly competitive, well-diversified economy; (ii) a strong track record of fiscal consolidation and a robust institutional structure; and (iii) a favourable debt structure, with supportive domestic demand for government debt, the longest average maturity structure (15 years) among all highly rated sovereigns globally and the resulting reduced interest rate risk on UK debt.

George Osborne has said that "Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it....We will go on delivering the plan that has cut the deficit by a quarter."

Writing on Twitter, Economist and Ex MPC member Danny Blanchflower says: "Osborne said it was his #1 benchmark so he WILL be judged on it"

Ed Balls added that "George Osborne said keeping the credit rating was the key goal of his economic policy. As his economic plan has floundered, it has been the last thing he has clung on to."