UK’s credit rat­ing in in­ten­sive care

Daily Mail - - City & Finance - By Sam Flem­ing

BRI­TAIN’S gold-plated credit rat­ing was cast into doubt af­ter a lead­ing agency ques­tioned the govern­ment’s deficit-cut­ting pledges.

Ster­ling lost ground against the dol­lar af­ter Fitch Rat­ings said the UK faces a ‘for­mi­da­ble’ task tack­ling a bud­get blowout that is sig­nif­i­cantly worse than those of the 1970s and 1990s.

The anal­y­sis firm said it is ‘not com­pletely ob­vi­ous’ that Chan­cel­lor Ge­orge Os­borne will take harsh enough ac­tion to ratchet back the Trea­sury’s deficit fore­casts over a num­ber of years.

In par­tic­u­lar, it sig­nalled there are con­cerns that the coali­tion’s tax-cut­ting plans will trump the need to hack back Bri­tain’s £890bil­lion debt bur­den.

Coali­tion pro­pos­als to ease in­come tax for poorer vot­ers par­tially re­verse Labour’s mooted Na­tional In­surance hike, and lower Cor­po­ra­tion Tax would make the deficit worse, not bet­ter, Fitch’s re­port said.

The re­port was re­leased as broader wor­ries about the scale of sov­er­eign debts pushed the gold price to a record high of $1,251 an ounce on fi­nan­cial mar­kets.

The pound slid 0.4pc to $1.44 against the dol­lar as Fitch’s re­port re­vived fears of a cut to Bri­tain’s triple-A credit rat­ing.

The euro gained one per cent against ster­ling to trade at 83p. The re­port came as a set­back on the day that Os­borne of­fered a roadmap to­wards aus­ter­ity that will in­clude con­sult­ing the pub­lic over where the axe should fall.

The pub­lic sec­tor work­force is likely to suf­fer acutely, af­ter head­count rose from 5.2m in 1999 to just be­low 6.1m to­day.

Fitch warned that Bri­tain’s gap be­tween tax rev­enues and pub­lic spend­ing, when ad­justed for swings in the eco­nomic cy­cle, will be the high­est in Europe in­clud­ing Greece. Across the 30strong OECD group of na­tions, it is only ex­ceeded by the US.

The agency was damn­ing about Labour’s record, de­scrib­ing plans in for­mer Chan­cel­lor Alis­tair Dar­ling’s last bud­get as ‘ un-am­bi­tious’ and l ack­ing cred­i­bil­ity.

But while Fitch noted that the new govern­ment has since set deficit re­duc­tion as its top pri­or­ity, it warned the Trea­sury could end up adopt­ing a ‘broadly sim­i­lar’ medium-term path for the ac­tual deficit, vi­o­lat­ing elec­tion pledges by the Con­ser­va­tives.

Fitch said: ‘It is not com­pletely ob­vi­ous from pol­icy state­ments that the new govern­ment will adopt lower deficit fore­casts through­out the medium term.’

A Trea­sury spokesman said: ‘Fitch’s re­port makes the case clearly for an ac­cel­er­a­tion of deficit re­duc­tion, par­tic­u­larly in light of events in the euro-area sov­er­eign debt mar­ket in re­cent months. The Govern­ment agrees.’

Cost-cut­ting op­er­a­tion: Work­ers across the pub­lic sec­tor, in­clud­ing the NHS, are likely to suf­fer

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.