UK’s credit rating is set to fall later this year as state debts dent tax cut hopes, experts warn
- Concerns about the state of the public finances were last week soothed
- This is because public borrowing figures came in better than expected
The UK faces a growing risk of a credit rating downgrade, experts have warned.
It comes as hopes of pre-election tax cuts fade because of the soaring cost of servicing the Government’s £2.6 trillion debt pile.
Concerns about the state of the public finances were last week soothed when public borrowing figures came in better than expected.
But analysts forecast that a rating downgrade later this year is still on the cards given the UK’s high level of debt relative to its annual economic output, or GDP.
Similarly to companies, governments are ranked to show how likely they are to pay back debts. A downgrade means their financial situation has worsened, and they are seen as riskier to lend money to.
The UK faces a growing risk of a credit rating downgrade, experts have warned
Concerns about the state of the public finances were last week soothed when public borrowing figures came in better than expected
Fitch, a leading rating agency, recently stuck with its bleak outlook for the UK, citing a weak economy and high government borrowing.
READ MORE: UK Government borrowing is lower than expected in July as Treasury coffers are boosted by ‘stealth tax’ income – raising hopes that Jeremy Hunt could announce cuts before the next election
A review of its current ‘AA’ rating is due later this year. Two other agencies, S&P and Moody’s, are due to give their verdict in October.
‘It is becoming clear that rating agencies are placing an ever-greater scrutiny on debt-to-GDP ratios when making their decisions,’ said Ellie Henderson, economist at investment bank Investec.
She noted that the UK’s current debt-to-GDP is more than double the average forecast for other AA-rated countries.
The UK lost its top-notch AAA rating a decade ago in the aftermath of the global financial crisis, but it is still seen as a relatively safe bet by investors.
The looming credit downgrade came as Ben Broadbent, the deputy governor of the Bank of England, warned yesterday that interest rates would ‘probably’ have to stay at higher levels ‘for quite some time yet,’ meaning mortgage borrowers could struggle with higher payments for longer than expected.
He also noted the method by which UK household energy bills were calculated meant a surge in global gas prices following the invasion of Ukraine had accelerated inflation in a way that was ‘both larger and more drawn out’ than in Europe.
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