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DOWNGRADING United Kingdom FROM AA- to A+ (S&P: AAA)
THIS IS A NON-NRSRO RATING.
Synopsis: Re. the balance of payments, imports have exceeded exports by an average of 500B pounds annually over the past several years. The major problems for the UK is that Europe's banking crisis does not appear to be abating as evidenced by the problems of the Cypriot banks. On the fiscal side, the deficit to GDP has declined over the past three years from 11.5% to 8.3%, which is a respectable decline, but is still substantial; the bulk of the deficit reduction was the result of increased taxes. The over-riding concern is whether the country will be able to continue to cut its deficit in the face of weaker economic conditions and a possible deterioration in the country's financial sector. Unfortunately, we expect that the UK's debt/GDP will rise and the country will remain pressed (we are waiting for addl 2012 data). We are downgrading.
Tax rises of up to £9bn – equal to a 2p increase in the basic rate of income tax – could be imposed after the next general election to limit further cuts in public spending, experts warned on Thursday.
The scale of the spending cuts scheduled for 2015 in George Osborne's budget will be so difficult to implement an incoming government would have little alternative but to raise taxes or borrow more, the Institute for Fiscal Studies said.
On Thursday morning the prime minister’s official spokesperson acknowledged that debt as a percentage of GDP “has risen” since the election, adding that the deficit had been reduced “by a quarter”.
“The government is taking measures to bring debt under control,” he said. “The point the prime minister is making is the prime minister’s government is taking tough decisions to deal with the economic crisis the government inherited.”