Britain's credit rating may yet survive
By Matt Falloon and Sven Egenter, Reuters
February 16, 2012, 12:00 am TWN
LONDON--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.
Britain's recovery from the steep slump in 2008-2009 has been weak. Unemployment — already at a 17-year high — is set to rise further, and Bank of England Governor Mervyn King has warned the way back to growth would be long and arduous.
But Britain is still enjoying near record-low borrowing costs. The reason is that investors still view its bonds as a relative safe haven in the global debt storm despite a deficit worse than that of France, which saw its AAA-rating downgraded by Standard & Poor's at the end of last year.