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UK faces rating blow as debt may soar 100pc

Posted by seumasach on May 22, 2009

The Treasury said there was a lot of economic uncertainty around and that it had already published plans to halve the budget deficit – predicted to hit £175 billion ($275bn) this year – over the next five years.

The problem is S&P does not believe the government numbers

Trade Arabia

22nd May, 2009

Britain risks losing its precious triple-A credit rating because of the danger that government debt may soar close to 100 per cent of GDP, and uncertainty over policy before an election due by next year.

Ratings agency Standard and Poor’s issued this warning, saying that Britain’s outlook was ‘negative’ and no longer ‘stable’.

Rival agencies Fitch and Moody’s disagreed. They quickly reaffirmed Britain’s ‘triple-A’ status and said the outlook was stable. But S&P’s warning is yet another blow to Prime Minister Gordon Brown, who seems on course to lose power.

‘Whoever wins the next election, tax hikes and sharp spending cuts will be the order of the day, but today’s announcement by S&P puts that much more pressure on the next government to act quickly,’ said Colin Ellis, economist at Daiwa Securities.

‘S&P’s move also leaves Gordon Brown’s fiscal reputation in tatters – the already long odds of him winning next year’s general election have just lengthened even more.’

After a decade of preaching prudence as finance minister, Brown has had to sanction government borrowing rising to record levels as the economy shrinks at its fastest pace since the Second World War and the state has had to bail out the banking sector.

Stripped of its reputation for economic competence and reeling from scandals over smears and lawmakers’ expenses, Brown’s Labour Party is trailing badly behind the opposition Conservatives in opinion polls.

Scenting blood, opposition politicians renewed their call for an immediate national election.

‘It’s now clear that Britain’s economic reputation is on the line at the next general election, another reason for bringing the date forward,’ said George Osborne, the Conservative Party’s shadow finance minister.

Official data released shortly after the S&P announcement showed British public borrowing hit a record high last month – the first month of the new tax year – as the recession-hit economy battered public finances.

The Treasury said there was a lot of economic uncertainty around and that it had already published plans to halve the budget deficit – predicted to hit £175 billion ($275bn) this year – over the next five years.

The problem is S&P does not believe the government numbers.

‘We have revised the outlook on the UK to negative due to our view that, even assuming additional fiscal tightening, the net general government debt burden could approach 100pc of GDP and remain near that level in the medium term,’ Standard & Poor’s credit analyst David Beers said.

S&P said the looming election was creating uncertainty about government policy.

‘The rating could be lowered if we conclude that, following the election, the next government’s fiscal consolidation plans are unlikely to put the UK debt burden on a secure downward trajectory over the medium term,’ Beers said.

One Response to “UK faces rating blow as debt may soar 100pc”

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