George Osborne received a qualified vote of confidence for his tax-and-spending plans in the wake of last month's budget as ratings agency Standard & Poor's reaffirmed the UK's AAA credit rating on Friday night.
In a statement released after financial markets in London had closed, S&P said it would decline to follow its rival Moody's in stripping the UK of its cherished AAA badge.
However, S&P said the UK remained on "negative watch," implying a one-in-three chance of a downgrade over the next two years.
"We continue to believe the government's efforts over the next few years to cut its fiscal deficit will likely drag on economic growth," S&P said, adding that weak spending by debt-burdened households and recession in the eurozone could also depress GDP.
The agency added that a downgrade could be triggered either by disappointing economic growth, or, "a reappraisal of our view of the government's willingness and ability to implement its ambitious fiscal strategy."
A Treasury spokesman insisted the statement was an endorsement of the coalition's deficit-cutting plans. "This serves as a reminder that our country cannot afford to simply run away from our problems. There are no easy answers to a legacy of debt build up over a decade," he said.
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