Chancellor George Osborne said yesterday that UK public sector debt will not fall as a proportion of the country’s output until 2016-17, which is a year later than the government had originally targeted.
The Office for Budget Responsibility, the independent body that makes the government’s economic forecasts, also said the UK will contract by 0.1% this year – down from its previous estimate of 0.8% expansion – and cut its growth forecasts for the coming five years.
Howard Archer, chief UK and European economist IHS Global Insight, said: “There has to be a very real danger that at least one of the credit rating agencies will strip the UK of its AAA rating over the coming weeks or months.
“[But] there are so few countries left now with a AAA rating, that to lose it would not be the stigma or threat to market confidence that it would have been say a couple of years ago.”
Fitch Ratings, one of the big three credit ratings agencies, issued a statement after the Autumn Statement asserting that its top rating of the UK government remains at risk.
“We forecast gross general government debt to peak at 97% in 2015-16, approaching the upper limit of the level consistent with the UK retaining its AAA status,” it said.
The agency gave the UK a negative outlook back in March, meaning the country was already at risk of a downgrade. It plans to carry out a further formal review of UK next year after the government’s new budget is released.
Macroeconomic forecasting agency Capital Economics argued that Osborne’s plan to stick by his existing strategy will do little to pull the economy out of its “current malaise” and warning that the triple-dip recession remains a real threat.
“Doubtless the chancellor hopes that by sticking to the pre-announced course he will preserve the UK’s coveted AAA credit rating and maintain very low gilt yields,” the group said.
“But the main threat to these lies not in missing his fiscal targets or the dangers that a bit more borrowing might pose, but rather in the prospect of continued economic stagnation – or worse.”
