Moody’s downgrades Spanish debt

Credit agency Moody’s has cut the rating of Spanish government bonds by two notches, echoing Standard & Poor’s decision two days ago.

Spain's rating was cut from Aa2 to A1 with a negative outlook.

Moody's said the difficulties facing Spanish banks wanting to borrow money had led the agency to scale back its growth forecast for the country.

"Moody's is maintaining a negative outlook on Spain's rating to reflect the downside risks from a potential further escalation of the euro area crisis," the agency said in a statement.

Moody's will also be be keeping a watchful eye on the new Spanish government, following elections on 20 November, with the expectation it will implement measures to reduce the deficit. The ratings agency warned it would downgrade Spain further if this was not the case.

The news follows Moody's warning yesterday that it was considering changing its outlook on France's AAA rating from stable to negative, and downgrades of both Italy and Spain by other major credit agencies in recent weeks.

European Union leaders will meet in Brussels on 23 October to try and find a solution to the eurozone debt crisis.