October 4, 2011

S&P maintains UK’s AAA credit rating

by Kay Mitchell

Credit ratings agency Standard & Poor’s (S&P) yesterday affirmed the UK’s AAA credit rating with a “stable” outlook.

An AAA rating is the highest possible and the agency said in a statement: “In our view, the U.K. has a wealthy, open, and diversified economy, supported by a well-established political system and macroeconomic policy framework, which can react quickly to economic challenges.

“We expect economic policy to focus on closing the fiscal gap, and we forecast the government’s net debt burden to peak in 2013. The stable outlook reflects our expectation that the government will implement the bulk of its fiscal consolidation program.”

However, the agency did add that the UK’s recovery has been “lacklustre”.

The confirmation of the credit rating will no doubt be welcomed by Chancellor George Osborne who yesterday said he is adhering to his budget deficit reduction plan, despite criticism from the opposition and some leading business groups.

Mr Osborne has continuously defended the harsh austerity measures and has deemed them fair and necessary in order to get the UK’s finances back on track.

Many business groups have said they could push the UK back into a recession by slowing economic growth but in a speech at the Conservative Party’s annual conference in Manchester, he said: “Borrowing too much is the cause of Britain’s problems, not the solution.”

Returning to growth, S&P said the economic recovery will come under pressure from the spending cuts with growth expected to be around 1.8% on average over the next three years.

Several leading business groups have slashed their growth forecasts for the UK economy and recently the International Monetary Fund predicted growth of 1.1% this year and 1.6% for 2012.

The Bank of England continues to maintain low interest rates in order to boost growth but speculation is mounting that it may reintroduce is quantitative easing programme this month – a scheme designed to stimulate growth.

In the meantime, the confirmation of the UK’s credit rating comes shortly after S&P downgraded the US’ credit rating from AAA to AA+ with a “negative” outlook.

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