S & P threatens UK rating downgrade

1. 
   
2. 
   

1. 
   S&P threatens UK rating downgrade
   

Britain’s gold-plated sovereign credit rating has suffered another blow after Standard & Poor’s became the third major agency to downgrade the outlook to “negative”.








Standard & Poor's has already cut the US and France to AA+ Photo: AFP






By Philip Aldrick, Economics Editor

7:59PM GMT 13 Dec 2012


37 Comments




The change means there is a “one-in-three chance that we could lower the ratings in the next two years”, S&P said. Moody's and Fitch already have the UK on “negative outlook” and plan to review the AAA status next year.


S&P, which has cut the US and France to AA+, said its decision reflected the weak recovery in Britain and sharply rising national debt. Many economists now believe the UK will lose its cherished top-notch rating, with one of the three agencies expected to move in 2013.


Earlier in the day, Mr Osborne sought to play down the significance of the rating, which has been under close scrutiny since he was forced to abandon his debt reduction target at last week’s Autumn Statement due to weak growth.


“It’s one test alongside others and the ultimate test is what you can borrow money at,” he told MPs on the Treasury Select Committee (TSC). “The test we have is one we have to meet every week when we go and try and sell our gilts.” His words were a marked change of tone from the Conservative’s manifesto pledge in 2010 “to safeguard Britain’s credit rating”.


Mr Osborne added: “My job is to maintain credibility. What I see in the current environment, with a lot of problems elsewhere in the European continent, is that the UK is something of a safe haven.”



Related Articles

• 
  Britain's prized AAA rating hangs in balance
  03 Dec 2012
  
• 
  Autumn Statement: Business boost to rescue economy
  06 Dec 2012
  

Markets appear to be taking the prospect of a downgrade in their stride. On Thursday, the Government sold 12-year gilts at a record low and, last week, the markets barely moved after the Chancellor confirmed he had missed his target, despite Fitch’s warning that it “weakened the credibility of the UK’s fiscal framework”.

“You didn’t see a reaction in the markets because they saw we were maintaining out commitment to deal with our debts,” he told MPs. “The debt target was put in place to assure people I would deal with our deficit. I think it helped. But faced with the choice; hit the target and hurt the economy or miss the target and help the economy, I decided to help.”

S&P praised the Government for maintaining “a strong commitment” to austerity and stressed that Mr Osborne must stick to his deficit reduction plan or risk an immediate downgrade. It added that the UK had a “good inflation record” and was in a stronger position than its “eurozone peers”.

However, S&P reckoned public debt will rise from 85pc to 92pc by 2015 and could approach 100pc if growth turned out to be weaker than expected. It estimated that the economy has shrunk 0.3pc this year and will grow by an average of just 1.6pc between 2013 and 2015.

David Tinsley, economist at BNP Paribas, said all three agencies could dump Britain’s AAA rating next year: “The safe haven glow of the UK is looking a bit tarnished... We would be surprised if the UK got through next year without at least one downgrade, and quite possibly two or three.”

Treasury sources pointed out that Britain, Canada and Germany are the only G7 countries still rated AAA by all three agencies

Some telling comments

===============================

steveinaustria

46 minutes ago




The rating doesn't matter because nobody other than the Bank of England is buying UK gilts anyway.

• Recommended by 4 people
  
• Recommend
  
• Report
  

andycfc

42 minutes ago




Wrong steve, pensions & insurance companies have to their liabilities are in sterling, but you are right that it doesnt matter.

• Recommended by 1 person
  
• Recommend
  
• Report
  

jack

2 minutes ago




When UK gilts lose the AAA rating the pensions stop buying and start selling by charter rules. Anything less than AAA is a calamity.

• Recommended by 0 person
  
• Recommend
  
• Report
  

stuartn

53 minutes ago




Leading from my previous letters in the DT, there seems to be nothing to stop our political class from bankrupting Britain except the cost of borrowing being too high producing a crisis. The sooner the rating agencies start us down the path to reducing our rating, the better.

• Recommended by 0 person
  
• Recommend
  
• Report
  

andycfc

49 minutes ago




A waste of stamps then...please explain how we can be "bankrupt" when we issue our own currency, have our debts in our own currency etc... funny i ask this question a lot here and always the answer is well didnt really mean "bankrupt" i put it that you are telling fibs and know it.

• Recommended by 2 people
  
• Recommend
  
• Report
  

circumflex

59 minutes ago




The trick is to assert that the moon is made of cheese and then say that unless I can prove it isn't, it must be true.

Gorgonzola anyone ?

• Recommended by 4 people
  
• Recommend
  
• Report
  

Caledonian_Comment

Today 04:10 PM




The change in rating is probably largely meaningless, except that it will give the banks yet another excuse to rip everyone off a bit more.
-

• Recommended by 0 person
  
• Recommend
  
• Report
  

stelmaria

Today 04:10 PM




George doen't seem to have much of a handle on international economics, unfortunately.

Credit rating = credibility rating in more than just the financial arena IMHO.

Love the photo, DT.

• Recommended by 2 people
  
• Recommend
  
• Report
  

antoniofisk

Today 04:06 PM




GO is doing a great job, just stop complaining Socialists!

• Recommended by 0 person
  
• Recommend
  
• Report
  

brabander

Today 04:06 PM




Of course Osborne is not worried about the potential impact of losing the AAA rating on the interest rates the UK may have to pay.

The simple reason is that he does not need to be worried as he will just tell the BoE to print the money. After all they have already printed £375 billion so far. What is another £100 billion or more.

• Recommended by 6 people
  
• Recommend
  
• Report
  

kimc

Today 04:05 PM




Next time could we all vote for a goverment that is capable of running the country, not labour or a coalition

Pound Drops to 8-Month Low Versus Euro as U.K. House Prices Fall


By Anchalee Worrachate & David Goodman - Dec 24, 2012 1:04 PM GMT

• 
  

The pound weakened to the lowest level in nearly eight months against the euro as a report showed house prices fell for a sixth month in December, strengthening the case for the Bank of England to expand its stimulus.

Sterling dropped to the lowest level in more than a week versus the dollar. Home prices in England and Wales slipped 0.1 percent, the same as in November, Hometrack Ltd. said today. Values are forecast to fall 1 percent next year after a 0.3 percent decline in 2012, the London-based property research group said. The Bank of England decided last month to halt its 375-billion pound ($606 billion) asset-purchase program, known as quantitative easing, designed to boost the economy.

“The move lower in the pound against the euro is a continuation of concern that the U.K. could lose its AAA rating in 2013 and the step up in austerity will keep the economy weak and inspire more quantitative easing from the Bank of England,”said Jane Foley, a senior currency strategist at Rabobank International in London. “The weak house-price data today doesn’t argue against those concerns.”

The pound depreciated 0.2 percent to 81.74 pence per euro as of 1:04 p.m. in London, after trading at 81.81 pence, the weakest level since May 1. Sterling was little changed at $1.6171, after falling to $1.6143, the lowest since Dec. 14.

Standard & Poor’s lowered its outlook on Britain’s AAA credit rating to negative from stable on Dec. 13, citing weak economic growth and a worsening debt profile.

Currency Indexes


The pound has gained 1.4 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro declined 0.8 percent and the dollar fell 3 percent.

The 10-year gilt yield rose less than one basis point, or 0.01 percentage point, to 1.89 percent. The 1.75 percent bond due in September 2022 fell 0.045, or 45 pence per 1,000-pound face amount, to 98.765. The rate dropped as much as seven basis points on Dec. 21, the biggest decline since Nov. 28. The two-year gilt yielded 0.34 percent.

The gilt market was scheduled to close at 12:15 p.m. in London and will resume trading on Dec. 27.

Gilts returned 2.2 percent this year through Dec. 21, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 4 percent and Treasuries earned 2 percent.

All the so called 'brains' the 'elite' of the Nation which sit on quangos, attend cabinet meetings, company board rooms, and gather in gay groups on stock exchange floors are seemingly unable to realise that we need to manufacture our way out of the recession, just as we have in past times.

But, we can't do it this time because consecutive governments since the odious witch Thatcher sold all our natural resources, destroyed our manufacturing base and adjunct skills developed over centuries and her disciples are now selling OUR Nation's treasures and family silver in an attempt to buy the Nation's way out of the hole they have dug us into!