S&P maintains negative outlook on Britain

12th July 2010, Comments 0 comments

Ratings agency Standard & Poor's on Monday maintained its negative outlook on Britain's top AAA credit status and warned of a possible downgrade if the government were unable to curb spending.

"The negative outlook reflects the potential of a downgrade if the government does not implement its challenging fiscal consolidation program on the scale currently planned," warned S & P credit analyst Trevor Cullinan.

"A slackening of that effort, in our view, could put the UK's net general government debt burden on a trajectory that would be incompatible with a AAA rating."

The agency, which revised its outlook on Britain to negative in May last year, said there was a "one-in-three likelihood of a rating change."

Standard & Poor's on Monday maintained its AAA rating on Britain's long-term debt, citing the country's "wealthy and diversified economy, ample fiscal and monetary policy flexibility and adaptable product and labour markets."

But it also warned that "large and politically challenging spending decisions are still be made" and that its own medium-term economic forecasts were less optimistic than those of the government.

The agency noted that between 2007 and 2009, Britain's public debt rose by 23 percent of gross domestic product, more than in most other countries with AAA ratings.

At the same time, S&P praised the new coalition government for its "strong" efforts to shore up public finances that were contained in an emergency budget presented on June 22.

The budget called for higher taxation and spending cuts designed to narrow the nation's enormous public deficit.

The Conservative-Liberal Democrat coalition that took power after a general election in May inherited a record 154.7-billion-pound (233-billion-dollar, 187-billion-euro) deficit from the previous Labour government.

The goal is to reduce the shortfall to37 billion pounds in 2014-2015 and to 20 billion pounds in 2015-2016.

© 2010 AFP

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