London, Oct. 1 (BNA): Rating agency Standard & Poor’s cut the outlook for its AA credit rating on Britain’s sovereign debt on Friday to “negative” from “stable” as it saw Prime Minister Liz Truss’ tax cut plans would lead to debt remaining high. .
Finance Minister Kwasi Quarting announced permanent, unfunded tax cuts of around 45 billion pounds ($50 billion) on September 23, as well as costly temporary subsidies for energy bills for households and businesses, sending sterling and bond markets into a tailspin, Reuters reported.
While sterling has since recovered, the Bank of England was forced to launch an emergency bond purchase program on Wednesday to stabilize markets and warned that it may need to raise interest rates significantly in November.
Standard & Poor’s – which ranks UK government debt higher than rivals Moody’s and Fitch – said it sees Britain’s public debt on an upward trajectory, contrary to previous expectations that it will fall as a share of GDP from 2023.
“Our updated financial outlook is subject to additional risks, for example, if UK economic growth becomes weaker due to further deterioration in the economic environment, or if government borrowing costs increase more than expected, driven by market forces and monetary policy tightening,” he added.
Standard & Poor’s forecast that Britain will enter a technical recession in the coming quarters and GDP will shrink by 0.5% in 2023.
Truss and Kwarteng met with senior officials from Britain’s Office of Budget Responsibility on Friday, but so far have rejected calls from some investors and political rivals asking the independent OBR to publish new forecasts as soon as November 23, when Kwarteng plans to set a date. debt reduction plan.
Moody’s said Wednesday that Carting’s tax cuts were “credit negative,” and set October 21 as the next most likely date for a more formal review.
The British government said tax cuts and long-term structural reforms in areas such as immigration permits and planning should boost growth, but Standard & Poor’s said the benefit was likely to be modest, especially in the short term.
“At the moment, it is unclear whether the government plans to eventually introduce fiscal consolidation measures to return debt to a downward trajectory and we assume that the package will be debt-financed,” the report said.
Britain’s public borrowing was likely to average 5.5% of GDP per year from 2023 to 2025, compared to a previous forecast of 3%, while public government debt would rise to 97% of GDP by 2025, according to the report. Standard & Poor’s forecast.
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