S&P revises its outlook for Britain to negative

Standard & Poor’s Rating Agency has revised the outlook for British sovereign debt from stable to negative while maintaining its rating at AA, considering that Prime Minister Liz Truss’s tax cut plans will lead to a continued rise in debt.

On September 23, Finance Minister Kwasi Quarting announced permanent and unfunded tax cuts of about 45 billion pounds ($50 billion), in addition to temporary subsidies for household and commercial energy bills, which led to deterioration in the exchange rate of the pound and bonds. ‎

While pound has since recovered, the Bank of England was forced to launch an emergency bond purchase program on Wednesday 28th September to stabilize markets and warned that it may need to raise interest rates significantly in November.

Standard & Poor’s – which rates UK government debt higher than rivals Moody’s and Fitch – sees UK public debt on an upward trajectory, contrary to previous forecasts that it will fall as a share of GDP from 2023.

It added: “Our updated financial outlook is subject to additional risks, for example if UK economic growth becomes weaker due to further deterioration in the economic environment, or if government borrowing costs increase more than expected, driven by market forces and monetary tightening.”

The agency expected that Britain would enter a technical recession in the coming quarters and that the gross domestic product would shrink by 0.5% in 2023.

Unexpected growth

Britain’s economy grew in the second quarter, defying initial estimates of contraction, and the country’s current account deficit posted smaller than expected, according to revised official data published Friday, September 30.

The Office for National Statistics said that economic output rose by 0.2% in April through June, contrasting with a previous reading of -0.1% contraction.

The current account deficit was 33.8 billion pounds ($37.60 billion).