S&P’s changes UK outlook to negative
Credit rating agency, Standard & Poor’s (S&P), has revised its outlook for the UK from ‘stable’ to ‘negative’ following the announcement that Government borrowing soared to almost £8.5 billion in April.
Official figures show that public sector net borrowing rose to £8.46 billion last month, more than four times the £1.84 billion figure in April last year.
It is the first potential downgrade of UK public debt since the agency began rating Government debt more than 30 years ago.
According to S&P, the revised outlook was prompted by its opinion that the UK’s debt burden may reach 100% of Gross Domestic Product (GDP). According to the latest Office for National Statistics figures, public debt is currently 53% of GDP.
Yesterday, the International Monetary Fund (IMF) called on the Government to implement more ambitious plans to reduce the huge scale of public borrowing.
Today’s news, however, had an impact on sterling which fell more than 1% to $1.5514 against the dollar. The pound has experienced a recovery in recent weeks after hitting a six-month high yesterday to $1.5794 against the US currency.
The Chancellor, Alistair Darling, predicted last month that net borrowing over the financial year as a whole would reach a record high of £175 billion.
Meanwhile, returning to S&P’s revised outlook, the agency said reducing the Government’s debt burden depends on the timing and shape of the economic recovery.
Credit analyst, David Beers, comments: “The rating could be lowered if we conclude that, following the election, the next Government’s fiscal consolidation plans are unlikely to put the UK debt burden on a secure downward trajectory over the medium term.
“Conversely, the outlook could be revised back to stable if comprehensive measures are implemented to place the public finances on a sustainable footing, or if fiscal outturns are more benign than we currently anticipate“, added Mr Beers.
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