UK warned on debt 'credibility' over AAA rating

Triple 'A' letters The UK's top rating has been under threat for several months

The UK's failure to meet a key public debt target "weakens the credibility" of its top AAA credit rating, the Fitch ratings agency has said.

Debt will now not fall as a proportion of the country's output until 2016-17, a year later than Chancellor George Osborne had targeted.

Fitch said that the Autumn Statement confirmed the scale of the challenge facing the UK.

In March, it said the UK's AAA rating was under threat.

A cut to the credit rating would mean that the country is perceived as more risky to lend to, thereby raising the cost of borrowing from international investors.

The Office for Budget Responsibility, the independent body that makes economic forecasts for the government, announced that the UK will miss its debt target and the economy will contract by 0.1% this year - a big revision from the time of the Budget in March, when it said that the economy would grow 0.8% this year.

Growth forecasts for the next five years were also cut.

"We forecast gross general government debt to peak at 97% in 2015-16, approaching the upper limit of the level consistent with the UK retaining its AAA status," Fitch said.

Chart showing change in forecasts for government debt. Government debt now expected to rise more sharply and peak a year later in 2015/16

"The government has chosen not to chase the supplementary target by deploying additional consolidation measures over the next two years. In our view, missing the target weakens the credibility of the UK's fiscal framework, which is one of the factors supporting the [AAA] rating."

It warned in March that it could downgrade the UK in the next few years if the government does not contain the level of public debt.

Fitch said it would formally review the UK's rating after the next Budget in March 2013.

In February, rival agency Moody's also warned that the UK's credit rating may be cut in future, potentially increasing borrowing costs.

Confusion on borrowing

On borrowing figures, the chancellor said that debt would not begin to fall as a proportion of the country's output until 2016-17, which is a year later than the government's target.

Before the statement, many analysts had predicted that the budget deficit, which is the amount the government is having to borrow in the current year, would be higher than it was last year.

Autumn Statement Documents

PDF download Autumn Statement 2012[2,800 k]

Most computers will open PDF documents automatically, but you may need Adobe Reader

However, it is now forecast to fall from £121bn in 2011-12 to £108bn in 2012-13.

But there was some confusion about how that had been achieved, with shadow chancellor Ed Balls complaining about the full figures not being in the Mr Osborne's statement.

BBC economics editor Stephanie Flanders said that the deficit figure had fallen because the government had decided to use the proceeds from the sale of licences to run 4G mobile phone services to reduce this year's borrowing.

Without that, she said, the deficit would have risen "maybe by a couple of billion pounds".

Graph showing growth forecasts

There was also a reduction in the deficit of £11.5bn in the current year as a result of the Asset Purchase Facility.

As a result of the Bank of England's quantitative easing programme, the central bank currently owns a lot of the government's debt.

If anybody else had lent money to the government it would have had to pay interest on those loans.

The government has now decided it should not be paying interest to the Bank of England, and the benefit of that has reduced the deficit and will continue to do so for the next four years.

More on This Story

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

Features

  • OrangemanPunctured pride?

    How would N Ireland's Orangemen feel if Scotland left the union?


  • Sheep on Achill IslandMass exodus

    Why hundreds of thousands of people have left Ireland


  • MarchionessThames tragedy

    Survivors and victims' families remember Marchioness disaster


  • A teenaged mother in the Zaatari campUntold misery

    The plight of Syria's refugee child brides


  • Michael MosleyMeat feast?

    Which is the best eco option - eating beef, chicken or mussels?


BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.