S&P confirms top AAA rating for Britain

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Standard & Poor's rating agency on Monday confirmed its top AAA credit rating for Britain and maintained a stable outlook despite a poor growth outlook and a sluggish economy.

With the stable outlook, the agency does not foresee revising Britain's rating in the medium-term. S&P warned however that the rating could be re-evaluated if the government were to weaken its resolve to reduce public debt.

"Standard & Poor's Ratings Services today affirmed its 'AAA' long-term and 'A-1+' short-term sovereign credit ratings on the UK. The outlook remains stable," said a statement.

S&P said the agency's decisions reflected Britain's "wealthy and diversified economy, fiscal and monetary policy flexibility, and relatively adaptable product and labour markets.

"In addition, we view the UK as having deep capital markets with strong demand for long-dated gilts by domestic institutional investors. There is also demand from non-residents for sterling-denominated UK government debt, which provides some diversification to the UK's investor base."

S&P however forecast that Britain would experience only "relatively modest growth rates of around 1.8 percent on average in 2011-2014, lower than the 2.5 percent forecast" by the government's fiscal watchdog -- the Office for Budget Responsibility.

"Our expectation is based on our view that a rebalancing of the economy away from credit-fuelled private consumption and toward a higher contribution from more externally focused sectors will likely proceed more slowly than the OBR assumes.

"Nevertheless, accommodative monetary policy should, in our view, provide some support to the economy, as low interest rates keep private-sector debt-servicing costs low, and the currency at competitive levels.

"However, we also think that economic rebalancing may lead to lower growth in tax revenues than the OBR currently projects, which could put pressure on public finances," S&P added.

It also noted that the government's assumption that the private sector can quickly compensate for a withdrawal of public spending "may prove optimistic."


© 2011 AFP

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