Britain’s top rating may yet survive

Thursday, 16 February 2012 00:00 - - {{hitsCtrl.values.hits}}

Reuters: Britain’s top-notch credit rating may survive the threat of a downgrade because economists still believe in London’s resolve to erase a huge budget deficit and the central bank’s ability to print money.

Rating agency Moody’s imposed a negative outlook on Britain’s triple-A rating late on Monday -- the first such warning on London’s debt since the eurozone crisis -- saying the country’s finances were too weak to cope with another big shock.

The stakes for Prime Minister David Cameron are high. Costly bank bailouts and runaway public spending rises under his predecessor Gordon Brown have saddled Britain with one of the developed world’s highest budget deficits.

A downgrade of British debt could spook investors and make it much harder for London to raise the tens of billions of pounds of funding it needs to get through the next few years.

Economists and analysts still believe on balance, however, that Britain will get through the crisis without a downgrade. A Reuters snap poll of 10 economists taken after Moody’s announcement gave only a median 27.5 percent chance that Britain would lose its triple-A standing.

Moody’s issues a negative outlook if there is a one in three chance of a downgrade.

The warning, however, will hurt the Conservative-led coalition government’s economic record and fuel a debate here over whether a different policy mix to bring the economy back on track would yield better results.

While a downgrade would deal a major blow to Chancellor (finance minister) George Osborne, who has vowed to erase the budget deficit within five years, some economists doubt it would significantly drive up borrowing costs.