View more on these topics

Hung Parliament will mean AAA downgrade

The UK will lose its AAA rating if there is a hung Parliament as a result of the general election, according to Citibank.

The bank says the UK’s rating outlook is less secure than seems to be generally assumed. Gilt strategist Mark Schofield says: “The uninformed view is that the pre-Budget report was a non-event and that it leaves us no nearer or further from a ratings change. However, in our view the pre-Budget report leaves us significantly closer to a negative ratings action by virtue of having done nothing to slow the current pace of deterioration in the fiscal position.”

Citibank says the ratings agencies assume the UK will be able to issue inflation-linked gilts at close to zero real yields and will have a strong demand for gilts, albeit boosted by the asset purchase facility, but it doubts whether this is achievable as the Government looks to raise around £16bn a month amongst investors cautious of the UK’s long-term prospects.

The other assumption that the ratings agencies make is that the UK will have stable public office making stringent fiscal decisions. Citibank says without this the UK will certainly lose its AAA rating.

Schofield says: “We agree that a majority Conservative government would likely initiate a sizeable fiscal tightening quite quickly. However, a hung parliament is becoming a very real threat; indeed three of the past five opinion polls suggest it is becoming a high probability risk. The issue is not so much one of disagreement over the need to enforce fiscal restraint but the fact that the parties are so diametrically opposed in their stance on how such policy should be executed.

“Under a hung parliament we see little prospect of a credible fiscal retrenchment and that, against a backdrop of rising yields and an exit from quantitative easing could very quickly change the ratings agencies assessments of the UK’s creditworthiness.”


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm