You have to remember the USA was down graded, and very little happened, and I suspect the same here. You must remember as well the rating agencies were all heavily criticised for their failure in the 2008 crisis, and have been horribly wrong on many occasions , including Enron. They are at best an indicator, but they are not the be all and end all. All city reports indicate they have already discounted a potential downgrade, so the indexes will flutter red for a day or two, but nothing more.
There is no doubt the head of the French central bank is correct, the UK's total current leverage. if all debt is taken into account , including the UK Banks is currently 4 times GDP, worse than Greece. If the French is down graded, then the UK must be as well.
There have been good signs in the markets recently for the cost of government borrowing, but the post Xmas quarter will be the one that tells us all which way this is going to go. My feeling is that the ECB will step in if needed, and buy the necessary bonds. I suspect some rates will be eye watering, but will remain just affordable.
I think the real worry for the UK's future is the flat lining growth predictions and the lack of a non-city based or high street spending spree potential for recovery. Unemployment in the UK could well remain high for many years, as a significant proportion of all manufacturing has now moved to Asia or Eastern Europe.
I'm sorry to disagree with you Hilary, but your analysis of what will happen is fundamentally flawed. If you think the collapse of the Euro will be followed by a mild "belt tightening", then you are in for a shock. If as Christopher rightly points out due to the markets forcing up bond repayment interest rates, and major Banks start to fail, we will be smack bang in the middle of the next depression. The UK will be on the poop deck of exactly the same boat - The Titanic. It is also not obvious that the Euro will fail at all, just because UKIP and the Daily mail would love it too. I believe it will not, but time will tell.
This next paragraph is just a personal plea.
Can anyone on the forums who thinks about putting forward the UK body politic forward as some sort of bastion of proprietary and clear minded thinking, please stop and consider it first. We have several ex-MP's now serving time at her majesty's pleasure, as significant numbers were caught stealing from our Tax revenues. The UK's politicians are no better than anyone else’s and to to think they are is delusional. It is the UK's politicians catastrophic decisions to send our manufacturing to Asia and rely on the bankers in the square mile that has to a large extent landed the UK in the post crisis mess that it is now in. Not the French, or the Germans or indeed the Greeks but the good old British politician.