S&P downgrades Ireland

Standard & Poor’s has downgraded Ireland's credit rating based on the country’s weak banking system.

The ratings agency says the Irish Government will end up spending a further €10bn (£8bn) on bailing out the banks, bringing the total rescue package cost to €90bn. Continued unemployment also plagues the economy.

Ireland now has a rating of AA-, cut from AA and the lowest since 1995.

Roger Doig, credit analyst at Schroders, says it was "inevitable" that ratings agencies would begin to look at their grades as GDP expectations were revised, and he expects other agencies to follow suit.

There is also potential for Irish banks to need even more help in the future, he adds, causing agencies to further revise their ratings.

"The existing programme for the bailout of the banks addressed the commercial property developers which is the worst part of the Irish bank books. Nothing has been added to the residential issues on the mortgage book, these sit on the banks own balance sheet and are dealt with by the banks' own accord.

"Currently they are managing to deal with these losses through retained earnings but if there is a shock, such as further unemployment or rising eurozone interest rates, there is potential for the residential mortgage book to perform worse then it is currently. In this case the bailout could cost more."