S&P fires warning shot on UK rating

The UK’s AAA credit rating outlook has been set to ’negative’ by Standard & Poor’s (S&P).

According to the ratings agency, the large government debts set to be built up due to the financial crisis and economic downturn could lead to a future downgrade.

In a report, S&P indicated that public spending could need to be scaled back if the AAA rating is to be maintained.

Raised taxes could also help to reduce deficits - which are forecast to swell by £175 billion this year.

The nation’s net debt is also predicted to hit 80 per cent of GDP over the years to come, according to the government’s own figures.

These rising debts are partly caused by the erosion of tax revenues and rise in unemployment benefits claims provoked by the recession - with the costly bank bailouts launched due to the financial crisis adding to the burden.

Losing the top rating would represent a blow to the credit-worthiness of the UK - an important consideration as the government intends to sell huge volumes of bonds to prop up the weakening public finances.
S&P said in its report that it saw a net debt of over 100 per cent - meaning that the official forecasts seemed over-optimistic.

’How quickly the government can stabilise and then reduce the government debt burden will also depend on the timing and shape of the economic recovery and whether the cost of government support of the banking system is higher than we currently assume, areas where we also see continued downside risks,’ the report added.ADNFCR-2318-ID-19181150-ADNFCR