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April 18, 2011    

Standard & Poor’s give US negative outlook

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by Kay Murchie
Standard & Poor's give US negative outlook

Standard & Poor’s (S&P) has today lowered the US’ top notch credit rating from stable to negative – suggesting that the rating could be cut within the next two years.

The rating agency believes that the Democrats and Republicans will not be able to agree a plan to cut the spiralling US deficit.

President Barack Obama and the Republicans are in a disagreement over the spending cuts. The Republican-controlled House of Representatives has passed a 2012 budget program that plans to slash $6.2 trillion in spending by the Government over the next 10 years.

However, it is not expected to make it through the Democrat-led Senate.

In a statement, S&P said: “Because the US has, relative to its ‘AAA’ [top-rated] peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable.”

The budget deficit currently stands at almost 10% of output and is expected to increase further.

However, on a positive note, S&P said the US economy was generally in good shape but said: “We believe there is a material risk that US policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013.

“If an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the US fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns,” it added.

The US is the world’s largest economy so worries about its ability to pay its debt causes shockwaves throughout the global economy.

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