S&P says budget axe raises British ratings outlook

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Rating agency Standard & Poor's said on Tuesday that radical state spending cuts announced in Britain last week improved the outlook for the economy.

The agency held the top AAA credit rating for Britain and upgraded its outlook to stable from negative, citing the positive impact of the deep public spending cuts.

"S&P Ratings Services said today that it revised its outlook on the United Kingdom to stable from negative," the agency said in a statement.

"At the same time, Standard & Poor's affirmed its 'AAA' long-term and 'A-1+' short-term sovereign credit ratings on the UK."

Last week, Britain's Conservative-Liberal Democrat coalition government announced plans to cut almost half a million public sector jobs, slash budgets and welfare benefits, as it sought to tame a huge deficit.

"In our opinion, the decisions reached by the UK coalition government in its 2010 spending review reduce risks to the government's implementation of its June 2010 fiscal consolidation program," S&P added.

"Moreover, the coalition parties have shown a high degree of cohesion in putting the UK's public finances onto what we view to be a more sustainable footing."

The government wants to slash the enormous deficit, run up under the previous Labour government, as it seeks to preserve confidence on international financial markets and avoid a Greece-style debt crisis.

"The ratings on the UK reflect our view of the country's wealthy and diversified economy, fiscal and monetary policy flexibility, and relatively adaptable product and labor markets," said S&P credit analyst Trevor Cullinan.

"In addition, we view the UK as having deep capital markets with strong demand for long-dated gilts by domestic institutional investors."

Cullinan added: "In our opinion, the Conservative/Liberal Democrat coalition government's policy objective to close the fiscal gap further underpins the ratings.

"We believe that the completion of the government's spending review, announced on Oct. 20, 2010, reduces uncertainties about its political resolve to tackle the challenges resulting from the structural deterioration in public finances between 2007 and 2009.

"This deterioration led to an increase in gross general government debt of 24 percentage points of GDP over that period--more than in most other 'AAA' rated sovereigns."

Britain's public finances were slammed by recession-ravaged taxation revenues and banking-sector bailouts at the height of the global financial crisis.

Prime Minister David Cameron's coalition came to power in May saying it would take drastic action to eliminate Britain's record 154.7-billion-pound deficit.

© 2010 AFP

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