Spain downgrade puts UK in spotlight
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The downgrade of Spain has put the UK in the spotlight for the next possible sovereign downgrade, according to BNP Paribas.
Yesterday, Standard & Poor’s downgraded Spain from AA+ to AA due to doubts surrounding its ability to handle its deficit. This came after S&P also downgraded Portugal and Greece, which has been relegated to junk status.
But BNP Paribas currency analyst Ian Stanard warns that the downgrade was worse news for Sterling than it was for the Euro as it highlighted the flaws in the UK economy.
He says: “The downgrade of Spain is probably now going to lead to market speculation about the UK being the next downgrade and certainly if you take the data at face value, many of the deficit ratios are worse than those in Spain.”
The UK is currently running an annual budget deficit of 11.8 per cent of GDP, while Spain has a deficit of 8.1 per cent of GDP. Also, according to a recent report by the McKinsey Institute, a global financial think-tank, the UK’s total debt to GDP ratio reached 469 per cent by the end of 2008, compared to 342 per cent held by Spain.
In an interview with Bloomberg, OECD secretary general Angel Gurria said financial contagion from the Greek debt crisis has already happened.
He said: “This is like Ebola. When you realise you have it you have to cut your leg off in order to survive, it is contaminating all the spreads and distorting all the risk assessment measures. It is also threatening the stability of the financial system.”
Stanard says: “The next UK government has to address the issues immediately otherwise the ratings agencies will start to circle fairly quickly.”
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Readers' comments (5)
John Lacy | 29 Apr 2010 1:21 pm
With any of the probable Numpties in charge basically we're screwed already.
I can't believe that ANY of them have the guts to do what is necessary
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Callum | 29 Apr 2010 1:27 pm
Typical we get landed in the proverbial and lo and behold bankers are walking away with huge and unjustified bonuses.
Some of these profits should be ploughrd back into uk plc and help to bring down our shortfall.
not lining the pockets of people who helped put us in this situation
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Simon Webster | 29 Apr 2010 4:06 pm
The article appears to ignore the unemployment levels in each country. UK has significantly better employment and a more maleable tax base ie we are mugs...
We should be less vulnerable to downgrade...
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Toddy | 29 Apr 2010 4:14 pm
Absoutely, Callum, if they can afford to pay these bonuses they can afford to pay back the tax payer. Why don't the politicians see that?
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Anonymous | 4 May 2010 4:58 pm
I disagree, UK has strong record on debt repayment, and our economy is growing again, and exports are rising (fastest in 15 years). With costs under control after the election (and yes we know it will be painful), i do not believe we will be even close to Spain or Greece for that matter. Article is based on certain facts but not the full picture.
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