UK to lose triple-A rating, say economists
2013-01-22 17:47:08
Britain will lose its triple-A rating this year, says Rob Wood at Berenberg Bank, after public finance data showed chancellor George Osborne's attempts to cut the deficit are failing.
The fiscal position is likely to drift further off course as the UK veers towards a triple-drip recession. There is only so long that the Chancellor’s combination of smoke and mirrors and optimistic growth assumptions can disguise the problem. The UK will probably lose its AAA credit rating this year with at least one rating agency.
James Knightley at ING notes that tax receipts are down, as the economy continues to flat-line and austerity fails.
The disappointment has come from the tax side mainly, with income tax revenues, corporation tax revenues and VAT revenues all down on the same period for financial year 2011/12. This highlights the weak state of the UK economy and the fact that austerity measures are failing to generate the improvement in government finances that were hoped for.
He too asks, how long can the UK can hold onto its AAA status?
With the US and France having been downgraded by one ratings agency in the past couple of years, another disappointing UK borrowing number and a widely expected contraction in 4Q12 GDP on Friday will intensify the threat of the UK suffering the same fate.
Howard Archer of IHS Global Insight says a downgrade would be humiliating for Osborne but would not have a great impact on the economy.
The loss of the UK’s AAA rating would clearly be seen as an embarrassment for the government given the emphasis it has frequently placed in the past on keeping the AAA rating. Indeed, Chancellor George Osborne made it a key focus for the UK’s fiscal austerity prioritization as soon as the government came to power in the summer of 2010.
However, we suspect that the loss of the AAA rating would have only limited negative impact for the UK economy. There are so few countries left now with a AAA rating, that to lose it would not be the stigma or major threat to market confidence that it would have been say a couple of years ago.