Britain"s triple AAA credit rating comes under threat as Standard & Poor"s puts UK on "negative watch"

Britain’s coveted triple AAA credit rating comes under threat as ratings agency puts country on 'negative watch'Standard & Poor’s said
there was a one in three chance it could lower Britain’s rating within
the next two yearsIt said it expected government debt as a
percentage of gross domestic product to continue to rise in 2015
before declining againA downgrade by one of the big three
credit ratings agencies would drive up the UK's borrowing costs

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UPDATED:

09:42 GMT, 14 December 2012

Worrying: Britains gold-plated triple AAA status came under pressure today after an influential credit ratings agency put it on negative watch.

Worrying: Britain's gold-plated triple AAA status came under pressure today after an influential credit ratings agency put it on negative watch. It could prove embarrassing for Chancellor George Osborne

Britain’s gold-plated triple AAA status came under pressure today after an influential credit ratings agency put it on negative watch.

Standard & Poor’s (S&P) said there was a one in three chance it could lower Britain’s rating within the next two years, if economic conditions weaken in the UK.

It said it expected government debt as a percentage of gross domestic product (GDP) to continue to rise in 2015, before declining again, with future employment or growth shocks putting further pressure on Government finances.

The agency said: 'In our opinion, many of the factors that have restrained growth in recent years will likely continue to do so in the near term.'

S&P was the last of the three major credit rating agencies to maintain a stable outlook for Britain, and the move comes just over a week after Chancellor George Osborne said he would no longer be able to cut Britain's net debt by 2015.

A downgrade by one of the big three
credit ratings agencies would drive up the UK's borrowing costs,
potentially jeopardising the Government's deficit reduction plans.

'The outlook revision reflects our view that we could lower the ratings on the UK within the next two years if fiscal performance weakens beyond our current expectations, S&P said in a statement.

'We believe this could occur in particular as a result of a delayed and uneven economic recovery, or a weakening of political commitment to consolidation,' it added.

Britain's finance ministry stressed that S&P backed the country's current deficit-reduction plan.

'Standard & Poor's endorse the Government's 'strong commitment to implementing the fiscal mandate' and specifically warn against slowing 'the pace and extent of fiscal consolidation'. It is because we have stuck to that commitment that the deficit is down,' a spokesman said.

Concerns: Standard & Poors said it expected government debt as a percentage of gross domestic product (GDP) to continue to rise in 2015, before declining again.

Concerns: Standard & Poor's said it expected government debt as a percentage of gross domestic product (GDP) to continue to rise in 2015, before declining again. The Bank of England is pictured

The Government's bond trading had largely finished for the day when S&P made its announcement.

Alan Clarke, UK economist at Scotiabank, said that Britain was at risk of a downgrade from one of the major ratings agencies if the economy does not perform better than the government currently forecasts.

'The UK hasn't been downgraded yet, but it is getting closer,' he said.

'The UK needs to stop disappointing on growth and the public finances. However, the UK has suffered persistent slippage since mid-2010 so the odds are skewed towards a downgrade.'

A Treasury spokesman said the move brought S&P in line with rival agencies Fitch and Moody's, which both revised the UK to a negative outlook earlier this year.

The S&P report comes after Chancellor George Osborne said he will not be able to start bringing down national debt as a percentage of gross domestic product (GDP) in 2015/16, in his Autumn Statement.

He said he must extend his fiscal consolidation period by a year to 2017/18 after the independent tax and spending watchdog, the Office for Budget Responsibility (OBR), said it expected GDP to fall this year by 0.1%, compared to previous estimates of 0.8% growth.