Markets have plunged this afternoon after Standard & Poor’s downgraded its outlook for US sovereign debt from stable to negative.
At 15.48, the FTSE 100 had fallen by over 2 per cent to 5,874, while the Dow Jones fell 1.6 per cent to 12145.51. The Dax and the Cac 40 also fell from their opening price by 2.23 and 2.44 per cent respectively.
S&P has expressed concerned that the Democrats and the Republicans will not be able to agree on a plan to reduce the growing US deficit.
A statement from the agency says: “We believe there is a material risk that US policymakers might not reach an agreement on how to address medium and long-term budgetary challenges by 2013.”
“If an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the US fiscal profile meaningfully weaker than that of peer AAA sovereigns.”
S&P says that despite “exceptional strengths”, America’s fiscal position has “deteriorated steadily” over the last decade, particularly in the wake of the financial crisis.
The ratings agency has retained its AAA long-term rating and ’A-1+’ short-term sovereign credit ratings on the US for now.