Spain tops doom list, but UK warned

Britain is running out of time in its battle to keep its treasured Aaa credit rating, Moody's warned again yesterday, despite reporting that Spain potentially faces more trouble with its public finances than any other developed economy.

The international credit ratings agency said buyers of gilts were not likely to continue supporting Britain if a credible plan to restore the UK's public finances to health was not unveiled before the end of next year.

"For most of 2009, the assumption was that governments could decide on the timing: first react to the crisis, then announce future plans, and finally implement," Moody's said. "Such an assumption may be proven wrong... Aaa countries will probably not have the luxury of waiting for the recovery to be secured before announcing credible fiscal consolidation plans."

Moody's said it had compiled an international league table of developed economies, based on the so-called "misery index" of the 1970s, which measured inflation and unemployment, but updated to take account of joblessness and the fiscal deficit instead.

On the basis of official forecasts for unemployment and borrowing next year, the UK comes sixth, with Spain facing the most severe problems in the rankings. Latvia, Lithuania, Ireland and Greece also all fare worse than the UK, but the US, France, Italy, Germany and even Iceland look to be in better shape.

The Moody's report will add to the anxieties over the sustainability of Britain's top-notch credit rating, with some analysts having warned that Alistair Darling's pre-Budget report last week did not do enough to address lenders' concern about the UK's high levels of borrowing.