Key agency warns on Spain's credit rating

The escalating debt crisis in the eurozone came under sharp focus once again today as a key agency warned it may downgrade Spain’s credit rating.

The country’s mounting debt, financing needs and a lack of faith in its government’s ability to tackle the issues prompted Moody’s Investors Service to place the Aa1 rating – only just downgraded from AAA in September – on review.

The euro fell against most major currencies amid fears that Spain will be forced to follow in the footsteps of Greece and Ireland and accept a multi-billion euro bailout from the European Union and International Monetary Fund.

But despite problems in the property and banking sectors, the Spanish government has denied it will need any financial assistance.

Economists, most recently including deputy governor at the Bank of England Charles Bean, have raised concerns over the threats sovereign-debt woes in Europe pose to the UK economy.

A weakened eurozone could hit the UK’s export trade – seen as key to a healthy economic recovery.