Uh Oh! Britain Faces Possible Credit Downgrade

If this recession keeps up, the only AAAs left in the world will be the emergency roadside company and minor league baseball clubs (Go Mud Hens!).

Wednesday, a senior Moody's analyst said that Great Britain is at risk of losing its AAA credit rating. The analyst suggested that slowing economic growth and minimal public spending cuts leave Britain flirting with the line between AAA status and a lowered credit rating — a downgrade which would cost British taxpayers significant sums in additional interest rates.

"Although the weaker economic growth prospects in 2011 and 2012 do not directly cast doubt on the UK's sovereign rating level, we believe that slower growth combined with weaker than expected fiscal consolidation efforts could cause the UK's debt metrics to deteriorate to a point that would be inconsistent with a AAA rating," said Sarah Carlson, vice-president and senior analyst at Moody's.

For everyone not subject to the Queen's rule, a downgrade in Britain's credit rating could offer some trading possibilities. If the credit rating went down, there would almost certainly be a corresponding decline in the British Pound, as investors flee for safer currencies.

The U.S. dollar and Swedish krone are the main safe haven currencies, and each offers a long play against a declining pound.

The Euro is another obvious choice, as the currency is right across the channel from Britain. However, Europe is having its own debt crises, and hardly represents a definite stable landing place for pounded pound traders.

If you want to give the opposite a try, CurrencyShares British Pound Sterling Trust ETF (NYSE: FXB) tracks the price of the British Pound Sterling net of the Trust's expenses, which are expected to be paid from the interest earned on the deposited British Pound Sterlings.