Spending plans should help UK keep AAA status

Public spending cuts and tax hikes after the next election should enable the UK to hang on to its gold-plated triple A credit rating, a leading agency said today.

Moody's said it assumed that an adjustment to Britain's public finances would keep the country from toppling from the top-rated threshold.



But the agency warned that the UK's ballooning gross public debt meant it had lost "some altitude" in the triple A category and would need to "severely adjust" fiscal policy even in the unlikely event of a sharp upturn in the economy.



Both the UK and US were afforded "resilient" status by Moody's in their new quarterly ratings update - more stable than "vulnerable" but a step down from "resistant".



The ratings firm said the countries were both showing signs of recovery despite heavy debt burdens, but warned "our assumptions in terms of economic dynamism and fiscal adjustment capacity may be put to the test in the coming years".



In the UK's case, Moody's said the willingness of a future Government to tackle the public finances would be crucial to keeping the country from losing its gold standard rating.



"Even though its debt metrics have deteriorated considerably and, in the baseline scenario, it has come very close to the AAA-AA demarcation zone, we assume that the adjustment to the UK's public finances that is likely to take place in the context of the forthcoming elections - probably through cuts in spending - will keep that debt trajectory within AAA boundaries," the report said.



The firm cautioned that "genuine fiscal consolidation cannot be expected to take place (or even be announced in a credible manner)" before the election, which will take place at the latest in spring of next year.



"Still, broad acceptance among the public of the inevitability of cuts in government expenditure and tax increases suggests such consolidation is at least possible," Moody's added.



Yesterday, both Chancellor Alistair Darling and Tory leader David Cameron signalled a willingness to curb public spending.



The Chancellor has indicated net borrowing over the year will reach £175 billion as recession hits tax revenues, while spending on unemployment benefit soars.



Moody's said the UK's gross public debt had almost doubled - to above 80% of GDP - in three years and it did not expect it to stabilise "for many years to come".



Last month official figures showed that the nation's net debt, at £800.8 billion, accounted for 56.8% of gross domestic product (GDP), its highest since the Office for National Statistics measure started in 1974.



Earlier this year rival ratings agency Standard & Poor's (S&P) said UK national debt could rise to 100% of output by 2013, leading to the UK losing its coveted triple A status.



It is the first time the nation's gold standard rating had come under threat since S&P began assessing the UK's sovereign debt in 1978.



But today Moody's said one positive had come in the form of an update from UK Financial Investments (UKFI), the body in charge of managing the government's stake in rescued banks.



UKFI, which controls the state's holdings in Royal Bank of Scotland and Lloyds Banking Group, reported in July that it was sitting on paper losses of £10.9 billion, around £7 billion less than the figure in February.



Moody's said the improvement "illustrates the plausibility of the government support to banks yielding a loss that is a fraction of the debt raised to finance it, or even generate a profit".



The agency said that while there were conflicting signs on the health of the UK economy, it did now "appear to be stabilising" but was "not yet on a solid recovery path".



Moody's, which stripped Ireland of its triple A status in July, said it did not expect to make any further downgrades in the near future.



Spain, which had shared its "vulnerable" rating with Ireland, was "a safe distance" from losing its status with better-than-expected economic growth.



Meanwhile, France and Germany, two of the top-rated "resistant" countries, were said to have been more affected by the economic downturn than expected, but had rebounded faster.

PROMOTED VIDEO
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Sport
Luis Suarez looks towards the crowd during the 2-1 victory over England
sport
Life and Style
Cheesecake frozen yoghurt by Constance and Mathilde Lorenzi
food + drinkThink outside the cool box for this summer’s frozen treats
News
John Barrowman kisses his male “bride” at a mock Gretna Green during the Commonwealth Games opening ceremony
peopleBarrowman's opening ceremony message to Commonwealth countries where he would be sent to prison for being gay
Sport
Sir Bradley Wiggins removes his silver medal after the podium ceremony for the men’s 4,000m team pursuit in Glasgow yesterday
Commonwealth games Disappointment for Sir Bradley in team pursuit final as England are forced to settle for silver
Sport
Alistair Brownlee (right) celebrates with his gold medal after winning the men’s triathlon alongside brother Jonny (left), who got silver
England's Jodie Stimpson won the women’s triathlon in the morning
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trade Desk Specialist (Linux, Windows, FIX, Finance, Networks)

£60000 per annum: Harrington Starr: Trade Desk Specialist (Linux, Windows, FIX...

Associate CXL Consultant

£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...

Project Manager - ETRM/CTRM

£70000 - £90000 per annum + Job Satisfaction: Harrington Starr: Project Manage...

C#.NET Developer

£300 - £350 per day: Harrington Starr: C#.NET Developer C#, WPF,BLL,MVVM, SOA...

Day In a Page

Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform