The United States has had its coveted 'AAA' rating downgraded by rating agency Standard & Poor's over concerns of political risk and its debt burden.

The rating agency lowered its long-term credit rating for the US to AA+ from AAA, while affirming its A-1+ rating for short-term debt.

The agency revealed that the downgrade reflected its belief that the fiscal consolidation plan politicians had agreed on fell short of necessary reforms to stabilize its 'medium-term debt dynamics'.

It added, 'More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a
negative outlook to the rating on 18 April 2011.'

The agency revealed it was more pessimistic about the country's ability to overcome the gulf between political parties on fiscal policy.

It also affirmed its negative outlook on the long-term rating, warning that it could lower the rating further to AA 'within the next two years' if spending is not reduced, interest rates rise or if new fiscal pressures emerge.

Concerns over the rating had led to a furious amount of political pressure to raise the country's debt ceiling last week.

Both political parties had found themselves at loggerheads as they strove to come to an agreement before the 2 August, when debt payments were due.

However, the agency took the ratings off CreditWatch following the passing of the Budget Control Act Amendment on 2 August, removing any immediate
threat of payment default.

City veteran Terry Smith said doubt over US creditworthiness was 'hardly surprising' as it remained the only major economy where government spending as a pecentage of GDP had raise since the credit crisis began.

The Fundsmith chief executive added, 'There is a complete lack of political direction in the US and across the western world.

'Rather than expend energy on irrelevant hypothetical arguments over whether the US debt is to be $20 trillion or $22 trillion in ten years time, which what Obama's administartion has criticised in the S&P note, the US government, and governments across the western world, need to face up to the cold hard reality that for the last 30 years we have simply been living way above our means.'

Smith added, 'We have publicly and privately borrowed too much and governments have saddled themselves with unsustainable levels of debt in order to fund this wild expansion in our standard of living.'

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