Fellow agencies Moody’s and Fitch both revised the UK to negative outlook in the first half of this year. The Treasury pointed out that S&P endorsed the government‘s “strong commitment” to reducing the deficit. “It is a hard road, but the economy is on the right track and just this week it was again confirmed that jobs are being created, with over one million private sector new jobs in the last two years,” a Treasury spokesperson said.
A country’s credit rating can influence its borrowing costs, as some investors are restricted from lending to borrowers that do not have a high rating. The UK, Germany and Canada are the only major economies to have a top AAA rating.
The UK is expected to have a budget deficit of 7% of GDP this year, well down on the 11% seen at the peak of the financial crisis. Its net debt, excluding interventions to support the banking sector, is forecasted to keep rising and peak at 80% in the 2015/16 tax year.
S&P also revised its outlook on the Bank of England‘s AAA rating to negative. A downgrade of a credit rating does not necessarily substantially damage the ability to borrow. The US was downgraded from its AAA rating last year, a move that has not materially changed its borrowing costs.
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Park Sae-jin
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