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‘US likely to be downgraded even if debt ceiling is increased’

The United States is unlikely to keep hold of its AAA credit rating even if its government agree to raise its debt ceiling by the August 2 deadline, according to economic research consultancy Capital Economics.

The US Treasury has warned that the government will run out of money to pay its bills unless the £8.7trn borrowing limit is increased by Tuesday.

A vote on the Republican bill to raise the debt ceiling was delayed on Thursday.

In a note published today, Capital Economics says the US will avoid default but will probably still lose its AAA credit rating, possibly as soon a next week.

It says a downgrade could be avoided if US politicians make cuts of up to $4trn over the next 10 years, but says this is unlikely at the present time.

It says: “It is increasingly hard to see how the US government can keep its AAA credit rating. Based largely on comments from S&P, this would require the politicians to agree a deficit reduction package containing spending cuts and tax increases worth at least $3trn and perhaps as much as $4trn over the next ten years. None of the current proposals come close enough to this.”

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