China agency downgrades UK sovereign credit rating

24th May 2011, Comments 0 comments

A Chinese ratings house on Tuesday downgraded Britain's sovereign credit rating over what it said was the country's gloomy economic growth prospects and weakening ability to pay back debt.

Dagong Global Credit Rating Co. Ltd. downgraded the country's local and foreign currency sovereign credit rating to A+ from AA- with a "negative" outlook for its solvency, the company said in a statement.

The downgrade reflected "the deteriorating debt repayment capability of the UK and the difficulty in improving its sovereign credit level in a moderately long term in the future," it said.

Uncertainties arising from the Bank of England's future monetary policy and the impact of debt-laden European countries on the British financial system are "likely to further worsen the government's fiscal status", it said.

The British economy grew 1.3 percent last year and Dagong said it expected the rate to show little or no change in the coming two years, which "directly curbs the improvement of the national economic status."

Dagong has made a name for itself by hitting out at its Western rivals -- Moody's, Fitch and Standard & Poor's -- saying the big three caused the financial crisis by failing to properly disclose risk.

The Chinese agency, which is trying to build an international profile, has given the United States and several other nations lower marks than they received from the Western ratings firms.

Britain's deficit for the 2010-2011 financial year fell from almost 162 billion euros ($228 billion) the previous year to just below 147 billion euros, after a swathe of cuts ordered by Prime Minister David Cameron.

That meant the deficit was logged at 10.0 percent of national output, down from 11.5 percent 12 months earlier.

It is the third-highest in the European Union after that of Ireland and Greece -- higher than either Spain or Portugal, next in line at just above nine percent each.

Britain's cumulative national debt, however, rose by almost 20 percent year-on-year to more than 1.2 trillion euros -- and now accounts for 82.5 percent of GDP.

© 2011 AFP

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