For those following this thread who might not be familiar with some of the concepts, a quick explainer. Apologies to everyone else.
Government borrowing. The govt borrows by selling bonds. These have a face value and an agreed payout. So the govt may sell you a bond with a face value of £100 and an annual payout of £4. Therefore it returns 4%. (Sorry Nigel I know that last bit might have been too tricky for you, just go over there and play with your crayons).
But the bonds are traded on the open market so the price of the bond can change. The payout doesn't change. So if the bond price went up to £200 and was paying out £4 p.a., the buyer of it would then be earning 2%.
This is what's happening with govt bonds at the moment. The price of the bonds is rising, so the interest rate is falling. Why is the price rising? Supply and demand. In times of uncertainty, the safest place to put your money is in govt bonds. You can't just put it in the bank because banks can fail. But the chances of the govt going bust is about as likely as Leicester City winning the Premier League. OK, bad example...
So long term interest rates, as derived from govt borrowing, over the short term, aren't really a reflection of govt creditworthiness, more a reflection of the attitude of the markets to riskier assets.
In very simplistic terms the FTSE 250 is down, bonds are up, because investors are selling corporate shares and buying govt bonds.
We won't get a true picture of how our perceived creditworthiness is affected until this unwinds (imo it will be largely unchanged).
Ratings Agencies: These provide research and opinion on a whole range of financial instruments from sovereign debt, and corporate borrowing to more exotic things like sub-prime mortgage bonds (remember those?).
This is really handy for investors in things like corporate debt, if you don't have the time to do loads of research into a company to know whether their bonds are the right level of risk for your portfolio, you can take the rating agency's view.
It's a lot less relevant for sovereign debt in a major world economy that has it's own central bank, because the info that affects that debt is constantly rammed down your throat widely available. Investors have more than enough data to form a view.
The agencies' recent announcements may well be a true reflection of the prospects for the economy, but in my view the actual credit rating they decide to give us is irrelevant.
Personally if we are looking solely at 'actual economic effects', I'm expecting a steady drip drip of largely bad news at least until it becomes clear whether we are keeping the single market, and for some time after as the uncertainty effect feeds through into the backward-looking data.
I thought Easyjet's immediate profit-warning was interesting. I wonder if they've gambled on the dollar rate and lost. They must buy a hell of a lot of fuel...