Chancellor George Osborne's attempts to cling onto the nation's triple-A credit rating look doomed but the loss would be "symbolic, not catastrophic", the UK's biggest bank says.
Any short-term turbulence in debt markets after a rating downgrade might even present investors with a buying opportunity for UK bonds, according to economists and market analysts at HSBC.
Two of the big three ratings agencies – Moody's and Fitch – at present have the UK on a negative outlook, implying a one-in-three chance of a sovereign downgrade. They and fellow agency Standard & Poor's are due to review the UK's debt position next year.
HSBC's UK economist Simon Wells said: "The UK can issue its own currency – it is a 'true sovereign' – and so pure default risk is almost zero as it can create money to finance debt. Reflecting this, the gilt market should largely shrug off a one-notch downgrade. Indeed, any dips might present a buying opportunity."
The bank's report warns that the nation's AAA rating is under most threat from worsening long-term growth prospects.