LONDON (Reuters) - One major ratings agency has already stripped Britain of its triple A credit rating, and others may follow after the government admitted on Wednesday that it will take longer than it originally hoped to bring down public debt.
Britain’s independent budget watchdog - whose projections are used by the government - halved its growth forecast for this year and said borrowings in the coming years would be higher than it thought just three months ago.
Further downgrades would be embarrassing for the Conservative-led government. It came to power in 2010 with an ambitious debt-reduction agenda. Gilt investors, who took last month’s ratings downgrade from Moody’s in their stride, are likely to be more sanguine.
The United States and France have also lost triple-A ratings, so there are few “safe haven” debt markets left.
The following is a summary of how each rating agency views Britain’s credit profile:
Moody’s was the first major agency to downgrade Britain’s credit rating. It lowered Britain’s rating by one notch to Aa1 from Aaa last month, citing weak growth prospects and the drag from “ongoing domestic public and private sector de-leveraging”.
It said the growth and borrowing forecasts contained in Wednesday’s budget were unlikely to alter the “stable” outlook on the new rating.
“Moody’s is assessing the UK budget and expects that it will confirm the government’s policy commitment to reverse the debt trajectory which, along with the country’s underlying economic strength, underpins the stable outlook on the UK’s Aa1 government bond rating,” it said.
Fitch put Britain’s triple-A rating on negative outlook in March 2012 when it warned a downgrade would be in the offing if the government failed to contain the expansion of its public debt.
It noted at the time that Britain’s indebtedness was already “significantly above the AAA median” and warned the government had “very limited fiscal space to absorb further adverse economic shocks.”
It is conducting a formal review of Britain’s rating and said Wednesday’s budget announcements would feed into that review.
A downgrade looks very likely. A year ago, Fitch said UK debt would need to peak at around 94 percent of GDP in 2014/15 for Britain to cling on to its triple-A status. Wednesday’s projections from the Office for Budget Responsibility show debt peaking above 100 percent of GDP.
STANDARD & POOR‘S
S&P rates Britain AAA but cut the outlook on that rating to negative last December, implying a one in three chance of a downgrade.
“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 December.
Reporting by Christina Fincher; Editing by Michael Roddy