Hung parliament would not hurt UK rating-Moody's

LONDON Fri Apr 23, 2010 1:06pm BST

The Houses of Parliament and Big Ben clocktower are pictured on a sunny day in London April 16, 2010. REUTERS/Luke MacGregor

The Houses of Parliament and Big Ben clocktower are pictured on a sunny day in London April 16, 2010.

Credit: Reuters/Luke MacGregor

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LONDON (Reuters) - A hung parliament after next month's election would not necessarily hurt Britain's triple-A rating given the broad political consensus on the need to cut the deficit, ratings agency Moody's said on Friday.

"A hung parliament does not in itself have direct implications for Moody's UK rating," said Arnaud Mares, Moody's lead UK analyst.

"The three main parties broadly agree on the desirability of fiscal consolidation on a scale that, if implemented strictly over the course of the next parliament, would be consistent with the government maintaining its Moody's Aaa rating," he added.

Opinion polls suggest a hung parliament, where neither Labour, the Conservatives nor the Liberal Democrats has an outright majority, is the most likely outcome of Britain's May 6 election.

Moody's reassurance on this issue is a blow to the Conservatives who have warned of dire economic consequences, possibly even an IMF bailout, if they do not win a majority.

POLITICAL DIFFERENCES SMALL

Moody's noted that differences between Britain's three parties related largely to the timing of fiscal consolidation and the mix of policy measure intended to achieve it, rather than the scale.

"The fundamental question is whether these differences of view on means threaten the execution of the fiscal consolidation on which all parties agree," said Mares.

"This need not necessarily be the case, so long as differences can be resolved within a parliamentary majority by 2011, when consolidation is expected to begin in earnest."

Financial markets, once fearful a hung parliament would result in political paralysis, also appear to have grown more comfortable with the idea.

The pound hit a three-month high against the euro on Friday, although it eased off its peaks after data showed Britain's economy expanded by just 0.2 percent in the first quarter of this year, half the rate markets had expected.

Moody's played down the impact of the GDP data.

"The preliminary figure for Q1 GDP is consistent with Moody's assessment that the recovery of the UK economy is under way, but at a slow, protracted and uneven pace," said Mares.

Britain enjoys a triple-A rating from all three major credit rating agencies but a surge in government borrowing has raised fears its credit standing could be at risk.

Standard & Poor's changed the outlook on Britain's rating to "negative" from "stable" in May 2009 and will update its assessment once the deficit-cutting plans of a future government are known. Fitch continues to have a stable outlook its UK rating.

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