The credit ratings agency also noted “the challenges that subdued medium-term growth prospects pose to the government’s fiscal consolidation programme, which will now extend well into the next parliament” and “a deterioration in the shock-absorption capacity of the government’s balance sheet, which is unlikely to reverse before 2016.”

However, Moody’s said the outlook on UK debt is stable

Mr Osborne responded to the downgrade by insisting he would not change course on the Government’s austerity programme.

He called Moody’s decision a “stark reminder of the debt problems facing our country – and the clearest possible warning to anyone who thinks we can run away from dealing with those problems”.

“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, and given us record low interest rates and record ‘the UK’s creditworthiness remains extremely high’ thanks in part to a ‘strong track record of fiscal consolidation’ numbers of jobs.”

He also took comfort that Moody’s noted that “the UK’s creditworthiness remains extremely high” thanks in part to a “strong track record of fiscal consolidation”.

Mr Osborne added: “[Moody’s] also make it absolutely clear that they could downgrade the UK’s credit rating further in the event of ‘reduced political commitment to fiscal consolidation’.

“We are not going to run away from our problems, we are going to overcome them.”