UK Would Lose AAA Status if it Enters Triple-Dip Recession, Says Ratings Agency

George Osborne

George Osborne was warned by one of the world's three biggest rating agencies on Wednesday night that the UK will lose its prized AAA credit status if the UK sinks into a triple-dip recession this winter.

In its annual health check on Britain, Moody's served notice to the chancellor that it would be carefully monitoring how he managed the difficult balancing act between growth and deficit reduction over the coming months.

The ratings firm said it had not yet decided whether to cut Britain's credit rating but said it could act in the new year either if growth prospects worsened or if Osborne failed to stick to a demanding timetable for reducing national debt.

The move came on the day that the Bank of England said the boost that accompanied the Olympics in the summer would be a one-off and halved its growth forecast for 2013 to 1%.

Moody's said: "The UK government's most significant policy challenge is balancing the need for fiscal consolidation against the need for economic stimulus."

The rating agency added that it would consider whether the UK should lose its AAA status in the new year once it had assessed how Osborne coped with its growth-deficit reduction dilemma in the Autumn Statement.

It said the coalition's attempts to reduce Britain's record peacetime budget deficit were being hampered by "weaker economic prospects as well as by the risks posed by the ongoing euro area sovereign debt crisis."

Moody's put the UK on negative watch – the threat of a downgrade in February this year.

It said last night three factors would govern its assessment: the likely speed of deficit reduction, the growth outlook and – most importantly – the likelihood that debt as a share of national income would not stabilise and start to come down over the next 3-4 years.

Speculation has been mounting in recent weeks that the independent Office for Budget Responsibility will force Osborne to admit in his Autumn Statement that slow growth will mean he can no longer meet his original aim of bringing down the debt to GDP ratio by 2015-16 without further austerity measures that would cut the economy's already sluggish growth rate.

Powered by Guardian.co.ukThis article was written by Larry Elliott, economics editor, for guardian.co.uk on Thursday 15th November 2012 00.40 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010

 

image: © DFID - UK Department for International Development

JefferiesAnd the Best Place to Work in the global financial markets 2017 is...

Register for Financial Markets News Alerts