UK’s credit rating in intensive care
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