GEORGE Osborne's assertion that the threat to the UK's AAA credit rating is a reality check was last night dismissed by Labour and the SNP, which insisted it was more of a "wake-up call" for the Chancellor to change course and boost public investment.

In putting Britain on a "negative outlook", Moody's, the ratings agency, has suggested there is a one in three chance it will lose its premium credit rating within the next 18 months – a lower rating would push up borrowing costs.

Moody's set out the risks to the UK's creditworthiness, which included a combination of slow growth with a "reduced political commitment to fiscal consolidation", a "failure to respond" to worsening conditions and a new banking crisis.

However, the ratings agency explained Britain's AAA rating "continues to be well-supported by a large, diversified and highly competitive economy, a particularly flexible labour market, and a banking sector that compares favourably to peers in the euro area".

It said significant structural reforms meant the UK economy was expected to return to 2.5% trend growth rate, albeit more slowly than previously thought.

Mr Osborne insisted the rating agency's assessment vindicated his austerity programme, saying: "We can't waver in the path of dealing with our debts and here is yet another organisation warning Britain that if we spend or borrow too much we are going to lose our credit rating but, more importantly, what that leads to potentially is a loss of investor confidence in our economy."

However, Ed Balls, the Shadow Chancellor, described Moody's assessment as "a significant warning" and urged the Government to change course and boost economic growth. "With our economy now in reverse, unemployment at a 17-year high and £158 billion extra borrowing to pay for economic failure, the case for a change of course and a real plan for jobs and growth is growing by the day," he said.

John Swinney, the Scottish Finance Secretary, accused the Chancellor of "turning a blind eye" to the detail of the report and the basis of its warning –weaker growth prospects. "The UK economy is stagnating as a result of the Westminster Tory/LibDem Coalition's failure to deliver a 'Plan MacB' approach to stimulate the economy with increased capital investment."

He claimed, with the UK economy already shrinking in the last quarter of 2011, now was "the danger point" in terms of Britain sliding back into recession. He noted how capital investment was central to the Scottish Government's approach and urged Mr Osborne to follow suit.

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