Downgrade 'will lead to more cuts'

The Chancellor laid low over the weekend following the downgrade of Britain's economic outlook by ratings agency Moody's - a scenario Mr Osborne had previously described as "humiliating" and said would signal "the absence of a credible deficit plan."

But Mr Osborne's responded to jeering MPs today promising more spending cuts to reduce the deficit, even if it stunted the economic growth that underpinned an AAA rating.

"We can redouble our efforts to overcome our debt problems," he said.

"That's what I'm going to do and that's what this government is going to do."

Credit ratings remain highly controversial in the wake of the economic crisis, with agencies' repeated failures to identify AAA investments on the brink on collapse.

The new AA1 rating signals a "negative" economic outlook but is still considered a high-grade investment, putting Britain on the same footing as Hong Kong and France.

But the downgrade could nonetheless deter ruthless foreign investors and intensify calls for further devaluation of the pound through quantitative easing - issuing more money to deliberately lower its value relative to other countries, thereby encouraging cheap exports.

Yet devaluation also makes currencies worth less in their own economies, driving the cost of living ever higher.

Meanwhile reports emerged that Bank of England governor Mervyn King voted earlier this month to jack its £375bn quantitative easing programme up to £400bn, fuelling further devaluation.