S&P keeps UK on negative watch
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Standard & Poor’s says the UK’s AAA status is still at threat thanks to its Government debt burden.
Last May the ratings agency moved UK sovereign debt status onto ‘negative watch’ due to the increase in its budget deficit. One year on S&P says the AAA ratings is still on negative watch, regardless of the austerity measures announced in the last Budget in June.
Standard & Poor’s credit analyst Trevor Cullinan says: “The ratings on the UK are supported, in our view, by the country’s wealthy and diversified economy, ample fiscal and monetary policy flexibility, and relatively adaptable product and labour markets.
“However, the UK faces challenges, mainly due to what we believe to be a substantial structural deterioration in public finances between 2007 and 2009, with gross general government debt increasing by 23 per cent of GDP, more than in most other AAA rated sovereigns.”
S&P shares the sentiments of fellow ratings agency Fitch that the coalition Government’s job of eliminating the structural current budget deficit, with a planned £113bn or 7.8 per cent of GDP through lower spending by 2015, is a “formidable” task. It says the assumptions of the Office of Budget Responsibility are too optimistic.
Cullinan says: “We believe domestic credit in the UK to be just over 200 per cent of GDP in 2010, compared with a median of below 150 per cent of GDP for AAA rated sovereigns.
“The negative outlook reflects the potential of a downgrade if the Government does not implement its challenging fiscal consolidation program on the scale currently planned. A slackening of that effort, in our view, could put the UK’s net general Government debt burden on a trajectory that would be incompatible with an AAA rating.”
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