Standard & Poor’s on Friday affirmed the United Kingdom’s AAA rating with a stable outlook, stamping the debt with the agency’s highest grade on expectations the economy will gather steam toward year-end.
“We project that despite recent weakness, the UK economy should begin to recover in the second half of 2012 and steadily strengthen, and we expect economic policy to continue focusing on closing the fiscal gap,” S&P said in a statement.
“In our view, monetary flexibility remains a key credit strength owing to the British pound sterling’s role as a global reserve currency,” the statement added.
Britain’s economy shrank far more than expected in the second quarter, battered by everything from an extra public holiday to government spending cuts and the neighboring euro zone crisis, data showed this week.
Analysts in a Reuters poll this week said Britain has about a one in three chance of losing its AAA sovereign credit rating, a move that would put huge pressure on finance minister George Osborne, who is sticking with austerity even as the recession deepens.
But S&P on Friday said its outlook for the rating was stable, reflecting “our expectation that the UK government will implement the bulk of its fiscal consolidation program and that the economy should recover in the remainder of 2012 and strengthen thereafter.”
Moody’s Investors Service rates the United Kingdom Aaa, and Fitch rates the country AAA. Both those ratings carry negative outlooks.
George Osborne has welcomed Britain’s continuation of its AAA credit rating by a key agency.
The verdict from Standard & Poor’s ratings agency showed the “world has confidence” in the coalition’s economic policies, the Chancellor said.
“As Britain welcomes the world to our country for the Olympic Games, this is a reminder that despite the economic problems we face, the world has confidence that we are dealing with them.
“The deficit has fallen by a quarter” inflation has fallen by half” employment is rising, with British businesses creating over 800,000 new jobs” and the economy is rebalancing, with Britain now exporting more to the rest of the world than Europe.
“And as S&P themselves say, what would damage Britain’s creditworthiness would be relaxing our resolve to deal with our debts. We won’t do that.”
The news is a boost to Osborne after weak GDP figures revealed on Wednesday drew heavy criticism of his performance and the Government’s austerity measures.
S&P said its outlook for the UK’s coveted rating was stable and predicted the economy would pick up in the coming months.
“We project that despite recent weakness, the UK economy should begin to recover in the second half of 2012 and steadily strengthen, and we expect economic policy to continue focusing on closing the fiscal gap,” the agency said in a statement.
“In our view, monetary flexibility remains a key credit strength owing to the British pound sterling’s role as a global reserve currency.”
But it warned: “We could lower the ratings in particular if the pace and extent of fiscal consolidation slows beyond what we currently expect.”
The statistics prompted coalition opponents to call for a change in course from the “failing plan” to revive growth, while some Tories called for Osborne to be replaced as Chancellor.
But Prime Minister David Cameron insisted the Government would “finish the job” of getting Britain’s debt under control.
Britain is mired in its second official recession since the global financial meltdown of the autumn of 2008. In May, the British economy entered a “double-dip” recession for the first since the 1970s.