Ireland’s credit rating is hit by a downgrade

Ireland's credit rating was cut today in a further humiliation for the once-booming Celtic Tiger economy.

Moody's Investors Service downgraded Irish debt from Aa1 to Aa2 because of the government's "gradual but significant loss of financial strength".

It blamed high levels of government debt, weak economic growth prospects, and the huge cost of rescuing banks. Ireland was the first country in the eurozone to plunge into recession in 2008 and it only emerged at the start of this year.

It has been plagued by a meltdown in the property market and soaring unemployment. The rating downgrade will push up the cost of borrowing for the state as well as businesses and households in Ireland, making a strong economic recovery much harder to achieve.

It stoked fears about the stability of other debt-ridden countries on the outskirts of the eurozone such as Greece, Portugal and Spain.

The global economy also looks shaky with concerns growing over the US and China.

The International Monetary Fund and European Union pulled a 20 billion (£16.9 billion) emergency financing deal for Hungary over the weekend after talks broke down over the government's budget plans. The removal of the safety net hit investor confidence.

But Germany grew significantly faster in the second quarter than the 0.2% expansion in the first.