‘Negative outlook’ for UK’s triple-A rating

14 Feb 12
The UK could lose its top triple-A credit rating amid worries over economic growth, a leading rating agency has warned.
By Richard Johnstone | 14 February 2012

The UK could lose its top triple-A credit rating amid worries over economic growth, a leading rating agency has warned.

Moody's Investors Service announced late last night that it was moving the UK on to a negative outlook, which means there is a 30% chance of its coveted rating being downgraded within 18 months. A lower rating could lead to higher borrowing costs for government.

The agency also announced a downgrade of six other European countries’ ratings, with a further two also put on a negative outlook.

Moody's said the decision on the UK reflected the ‘increased uncertainty’ around the coalition’s deficit reduction plan as a result of the ‘materially weaker’ growth prospects over the next few years.

The agency first suggested that it would examine the UK’s credit outlook in November. Also that month, the Office for Budget Responsibility downgraded its growth projections for the economy, and Chancellor George Osborne announced two additional years of government cuts. Borrowing projections also increased in the Autumn Statement.

Yesterday’s announcement stated that the two additional years of cuts would likely achieve the government’s two aims of balancing the current budget over a five-year period, and having national debt falling by 2015/16.

However, the agency warned there was ‘a reduced capacity’ to absorb further economic deterioration.

The report added: ‘A combination of a rising medium-term debt trajectory and lower-than-expected trend economic growth would put into question the government's ability to retain its triple-A rating. The UK's outstanding debt places it amongst the most heavily indebted of its triple-A rated peers, alongside the United States and France whose triple-A ratings also carry a negative outlook.’

The financial crisis in the eurozone has also placed ‘negative pressure’ on the UK's rating, with European debt worries hitting trade as well as consumer and investor confidence.

Despite this, Moody’s concluded that the UK would eventually return to its trend growth rate of around 2.5%, and added that the government had so far been exceeding some targets on cuts.

Responding to the announcement, Chancellor George Osborne said the announcement was a ‘reality check that Britain must not waiver on dealing with its debts’.

He told the BBC: ‘This is yet another organisation, in this case a credit ratings agency, warning Britain that if we spend or borrow too much we're going to lose our credit rating.’

But shadow chancellor Ed Balls said that the negative outlook was a result of the coalition’s gamble on raising taxes and cutting spending ‘backfiring’. 

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