Downgrade puts Portugal on brink of bailout

Political and economic uncertainty in Portugal has led the credit rating agency Moody's to downgrade the country's sovereign debt rating by one notch from A3 to Baa1. The rating is on review for a further possible downgrade.

Both Fitch and Standard & Poor's have also recently downgraded Portugal's debt amid expectations that it will be forced to seek an EU bailout.

Last month the Portuguese Prime Minister José Sócrates resigned after parliament rejected his latest austerity measures. Elections will be held on June 5.

In a statement Moody's said it "believes that the government's current cost of funding is nearing a level that is unsustainable, even in the short term".

"The limited migration of the rating to Baa1 in today's action reflects Moody's assessment that assistance would be provided by the other members of the eurozone if Portugal needs financing on an expedited basis before it can obtain funds from the European Financial Stability Facility."

It said it expected the new government to approach the EFSF "as a matter of urgency". Following the downgrade, the yield on Portugal's 5-year bond rose to 10 per cent. The country must finance €4.3bn of debt this month and €4.9bn in May.