UK risks losing its AAA rating

By Sumeet Desai and Keith Weir

LONDON (Reuters) - Britain risks losing its precious triple-A credit rating because of the danger that government debt may soar close to 100 percent of GDP, and uncertainty over policy before an election due by next year.

The pound tumbled 3 U.S. cents, bonds nosedived and the FTSE-100 stock index lost almost 2 percent on Thursday after ratings agency Standard and Poor's issued this warning, saying that Britain's outlook was "negative" and no longer "stable."

Rival agencies Fitch and Moody's disagreed. They quickly reaffirmed Britain's "triple-A" status and said the outlook was stable. But S&P's warning is yet another blow to Prime Minister Gordon Brown, who seems on course to lose power.

"Whoever wins the next election, tax hikes and sharp spending cuts will be the order of the day, but today's announcement by S&P puts that much more pressure on the next government to act quickly," said Colin Ellis, economist at Daiwa Securities.

"S&P's move also leaves Gordon Brown's fiscal reputation in tatters -- the already long odds of him winning next year's general election have just lengthened even more."

After a decade of preaching prudence as finance minister, Brown has had to sanction government borrowing rising to record levels as the economy shrinks at its fastest pace since World War Two and the state has had to bail out the banking sector.

Stripped of its reputation for economic competence and reeling from scandals over smears and lawmakers' expenses, Brown's Labour Party is trailing badly behind the opposition Conservatives in opinion polls.

Scenting blood, opposition politicians renewed their call for an immediate national election. "It's now clear that Britain's economic reputation is on the line at the next general election, another reason for bringing the date forward," said George Osborne, the Conservative shadow chancellor.