World Bulletin / News Desk
Britain's prized triple-A credit rating came under fresh threat on Thursday, after ratings agency Standard & Poor's cut its outlook for UK government debt to negative.
S&P sees a one-in-three chance that Britain will lose its triple-A rating, which would be a major embarrassment for finance minister George Osborne, who has staked his reputation on strengthening Britain's public finances.
"The outlook revision reflects our view that we could lower the ratings on the UK within the next two years if fiscal performance weakens beyond our current expectations," S&P said.
"We believe this could occur in particular as a result of a delayed and uneven economic recovery, or a weakening of political commitment to consolidation," it added.
Much weaker official growth forecasts forced Osborne last week to abandon a pledge to put Britain's net debt as a share of national income on a downward path by 2015, and S&P cited rising debt as a key reason for its negative outlook.
S&P had been the last major rating agency to hold a stable rating on British debt, after the other two, Moody's and Fitch, gave negative outlooks early in 2012 to their triple-A ratings.
"2013 looks like being a year when the UK could lose its AAA rating fairly comprehensively," said BNP Paribas economist David Tinsley. "Some of the safe-haven glow of the UK is looking a bit tarnished."
Moody's has said it will review its rating in the first few months of next year, while Fitch has said it would take another look after Osborne's March 20 budget.
Britain expects to run a budget deficit of 7 percent of gross domestic product this year, down from 11 percent at the height of the financial crisis. But it forecasts net debt, excluding financial sector interventions, will continue rising and peak at 80 percent in the 2015/16 tax year.
MARKET IMPACT UNCLEAR
While losing the triple-A rating would be a political blow to Osborne, the market impact on Britain's borrowing costs would be less certain. The United States and France both lost their triple-A ratings after the financial crisis, and later saw their bond yields plumb fresh record lows.
Britain, Germany and Canada are the only major economies to retain a triple-A debt rating.
Nonetheless, some investors are already edging away from British government debt. British government bonds' yield premium over safe-haven German debt rose to its highest since October 2011 earlier on Thursday, before S&P made its announcement.
"You have seen this death of a thousand cuts, a sort of salami-slicing of the gilt market," said Andrew Roberts, a fixed income strategist at Royal Bank of Scotland.
Britain's finance ministry stressed that S&P backed the country's current deficit-reduction plan.
"Standard & Poor's endorse the government's 'strong commitment to implementing the fiscal mandate' and specifically warn against slowing 'the pace and extent of fiscal consolidation'. It is because we have stuck to that commitment that the deficit is down," a spokesman said.
However, the opposition Labour Party said the rapid pace of government spending cuts was self-defeating as it reduced economic growth.
"At the start of this year S&P warned that austerity alone risks becoming self-defeating. But even as that warning is coming true, George Osborne is refusing to listen," said senior Labour Party lawmaker Ed Balls.
Russia has proposed from European Union Energy Commissioner Guenther Oettinger for a three-way meeting on gas between Russia
The southern African country, which ditched its hyper-inflated local currency in 2009, is facing a serious dollar crunch as a result of lack of foreign donor support and investment
The European Commission, in charge of policing member states' public finances, is expected to respond to French projections in early June after European parliamentary elections
The Australian purchase is a signal of confidence in the F-35 Joint Strike Fighter (JSF) programme, which is about 70 percent over budget and years behind schedule
Executives say a plan is needed to tackle surging inflation as economic recession looms.
An agreement between the United States and Japan is crucial for setting the tone for other countries engaged in the TPP
The pipeline was closed as a precaution following the discovery of the fuel store
Unfair pricing which threatens U.S. domestic industry brings additional taxes to Turkish and Mexican companies.
With unemployment near 11 percent and growth sluggish, Valls must strike a balance between reassuring EU partners and investors about France's deficits
"Regardless of how the stand-off over Ukraine develops, one lesson is clear: excessive dependence on Russian energy makes Europe weak," Tusk argues
So far, rubber trees have been planted on only 270 hectares of land. But the project has already begun yielding rubber, said to be up to international quality standards.
Construction of the new complex comes at a time when the university is scrambling to expand its facilities to keep up with growing student numbers.
Rouhani says tackling inflation is a priority, and the rate has dropped below 35 percent as his administration introduced more conservative monetary and fiscal policies.
Long queues at public petrol stations in Sana'a, as private stations have little fuel to oil to sell
The Yue Yuen facilities in Gaobu comprise the company's biggest manufacturing centre. In addition to Adidas, it also makes shoes for Nike Inc , Saucony and other global brands
The British oil major has paid out billions of dollars in compensation under a settlement. Some claimants are satisfied, but others are irate that BP is now challenging aspects of the settlement