Non-Standard and Poor outlook for UK economy

S&P has put the UK's credit rating on 'negative outlook' - but can we still believe a word it says?

Last Updated: 31 Aug 2010

Credit rating agency Standard & Poor’s gave Gordon Brown another headache yesterday by revising its outlook on the UK’s AAA-credit rating from ‘stable’ to ‘negative’ – and warning that a downgrade might follow unless the Government starts getting a handle on the spiralling budget deficit. The notion that the UK’s public finances are in a right royal mess is not terribly controversial. But it’s worth remembering that this warning comes from one of the agencies whose systematic failure to value sub-prime mortgages correctly is one of the major reasons why we’re in this mess…

S&P’s move came after the Official for National Statistics revealed that Britain’s budget deficit jumped to £8.5bn in April, the highest since records began (and four times as much as we borrowed this time last year). Although we get to keep our gold-plated AAA-rating for now, S&P has switched its outlook to negative for the first time in decades – which statistically means there’s a one in three chance that we could end up losing our impeccable credit rating.  Current Government estimates suggest that public debt, currently at about 55% of GDP, will peak at about 79% - coincidentally just below the level that would normally trigger a downgrade. But S&P doesn’t agree: it thinks our debts could reach a 100% of GDP, which isn't very AAA. And a downgrade would make it much more expensive for the Government to borrow all this money.

Of course, S&P and the like haven’t exactly covered themselves in glory lately. These ratings agencies managed to assign AAA-ratings to various packages of sub-prime mortgage loans, with a little encouragement from their chums at the banks, which has seriously dented their credibility (let’s just hope they’re not being similarly over-optimistic on this occasion, or we really should start panicking). So you might wonder why we should take their word for it this time round. It’s a bit like the ONS asking us to get excited about higher retail spending, a month after admitting their methodology was rubbish (oh wait, that happened too).

Then again, spotting the gigantic hole in the UK’s public finances is probably a bit more straightforward than valuing a load of US trailer parks. And the bad news is that our fate (as a creditor) depends largely on whether the Government can come up with a plausible plan for get the books in order. Since a deeply unpopular Government is not very likely to announce the big tax hikes and swingeing cuts this will require, we probably shouldn’t expect that to happen until after the election - which Brown and co will presumably leave as late as possible. So by the time the next lot get in, things really could be in a mess.

In today's bulletin:

Fasten your seatbelts - BA nosedives to record loss
Non-Standard and Poor outlook for UK economy
Editor's blog: Why this new Puritanism is pointless
Why green shoots lead to recovery
Resigning in style, with YouTube

Find this article useful?

Get more great articles like this in your inbox every lunchtime

The questions to ask when everything is unknown

Systemic intelligence is an indispensable skill for business leaders.

How to stop your culture going back to normal after COVID

In this video, Capita's Melanie Christopher and Greene King non-exec board director Lynne Weedall discuss...

This isn't just a health crisis, it's an equality crisis

Inspiring Women in Business winners: In the “new normal”, we must make sure that female...

How to build an anti-racist business

You don't need a long history of championing equality to make a difference.

What are Simon Roberts’ big 3 challenges at Sainsbury’s?

The grocer's new CEO has taken the reins at a critical time.

Should CEOs get political?

The protests that have erupted over George Floyd’s murder have prompted a corporate chorus of...