UK risks losing top AAA credit rating if growth is lower than predicted

[Loki]

UK risks losing top AAA credit rating if growth is lower than predicted

Ratings agency Moody's warns that failure to reduce deficit could have severe consequences – especially if growth is too slow

Britain could lose its prized AAA credit rating if George Osborne's latest growth forecasts prove too optimistic, ratings agency Moody's warned on Thursday.

Moody's cautioned that there was more chance UK economic growth would lag behind rather than exceed Osborne's predictions – which could thwart his drive to cut the deficit. This would create a significant risk that Britain could be downgraded, it said.

Osborne lowered his forecast for GDP growth this year and next year during Wednesday's budget, admitting that the recovery will be slower than thought until 2013.

"Although the weaker economic growth prospects in 2011 and 2012 do not directly cast doubt on the UK's sovereign rating level, we believe that slower growth combined with weaker-than-expected fiscal consolidation could cause the UK's debt metrics to deteriorate to a point that would be inconsistent with a AAA rating," Moody's said in a statement.

The warning sent the pound falling by nearly 0.5 cents to $1.6147.

Osborne told parliament on Wednesday that the UK economy would grow by 1.7% this year, and by 2.5% in 2012. These downgraded forecasts came from the independent Office for Budget Responsibility. They are still more optimistic than the latest assessment from the OECD, though. It predicted last week that the UK would expand by lacklustre 1.5% during 2011, and 2.0% in 2012.

Moody's also endorsed the chancellor's commitment to eliminating the UK deficit in this parliament, saying it was "very important to the AAA rating and stable outlook".

The budget was "fiscally neutral", according to the government, meaning it did not change the total tax burden. Higher personal allowances and cuts to corporation tax and fuel duty were balanced by a raised bank levy and increased taxation on oil and gas firms.

Fitch, a rival credit rating agency, has already warned that Osborne may have to impose further austerity measures if GDP growth is slower than expected, or if inflation continues to run much higher than official targets.

[Grumpy Cat]

I hate to sound doom and gloom, but, Western Civilization is collapsing. There was a picture of Canada's debt clock stopped in my town today on its national tour, and I almost shit myself... and Canada is supposed to be in the best shape of all Western nations.