Standard & Poor’s affirmed its AAA ratings for the U.K., but warned that there is at least a one-in-three chance of downgrade.
The affirmation of ratings reflects that the government remains committed to implementing its fiscal program, and that it has the ability and willingness to respond rapidly to economic challenges.
Fitch Ratings last month placed the U.K.’s coveted AAA ratings on “watch negative”, while Moody’s Investors Service stripped Britain of its top rating in February.
The diverse economy, fiscal and monetary policy flexibility and labor markets also support the AAA ratings, S&P said. Moreover, the U.K. as having deep capital markets with strong demand for long-dated government bonds by both domestic and nonresident institutional investors.
However, S&P maintained negative outlook on ratings, which said it could lower than ratings if the economic and fiscal performances were to weaken beyond current expectations.
“This serves as a reminder that our country cannot afford to simply run away from our problems,” the Treasury said.
The Chancellor of the Exchequer George Osborne in his budget speech on March 20 said the economy will grow less than expected this year as the debt crisis in the euro area, the country’s main export destination, drags on.
The rating agency expects real GDP growth to average 1.6 percent per year in 2013-2016, following growth of 0.3 percent in 2012. S&P said the weaker growth scenario could see net general government debt approach 100 percent of GDP, from its estimated current level of 85 percent.
The factors that constrained economic growth in recent years will likely continue to do so, S&P observed. Further, the fiscal consolidation measures as well as deleveraging by banks will likely drag on economic growth. In addition, weak external demand will hurt export performance.
by RTT Staff Writer
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