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Standard & Poor’s downgrades outlook on UK from stable to negative

Standard & Poor’s has downgraded the outlook on the United Kingdom economy from stable to negative.

The ratings service has revised the outlook on the view that despite further fiscal tightening, the UK’s general government debt looks set to approach 100 per cent of GDP and will stay there in the medium term.

The firm says the projections are based on cumulative potential gross fiscal cost of government support to the banking system, which it says is now in the region of £100-£145bn, which equates to 7 to 10 per cent of GDP for this year. S&P says these factors could result in a doubling of general government debt to 100 per cent GDP by 2013, which it says would be incompatible with a ‘AAA’ rating.

S&P credit analyst David Beers says: “We have revised the outlook on the U.K. to negative due to our view that, even assuming additional fiscal tightening, the net general government debt burden could approach 100% of GDP and remain near that level in the medium term,

“We base our opinion on our updated projections of general government deficits in 2009-2013. These projections reflect our more cautious view of how quickly the erosion in the government’s revenue base may be repaired, the extent to which the growth in government spending can be curtailed, and consequently the pace at which historically high fiscal deficits are likely to narrow.”

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