PRIME Minister Gordon Brown suffered a fresh blow yesterday as one of the country’s largest investors warned the UK’s triple-A credit rating was “extremely vulnerable”.
Standard Life said Britain’s ballooning budget deficit and the government’s unwillingness to take tough spending decisions created a “highly toxic” mix that could lead to its sovereign debt rating being slashed.
A downgrade by one of the major ratings agencies – Standard & Poor’s (S&P), Moodys or Fitch – would prompt a borrowing crisis. Government bonds would become harder to issue and more expensive to service.
Standard Life, which manages £157bn of assets, is the latest company to voice fears over the lack of a clear plan to pay down the UK’s £178bn deficit.
A fortnight ago, top US bond house Pacific Investment Management Company said there was an 80 per cent chance the UK’s credit rating would be downgraded if its deficit reduction plans remained unchanged. In May, S&P put the UK’s AAA-rating on a negative outlook and threatened to lower it depending on the Treasury’s stance after the summer general election.
In a note to investors, Standard Life investment director Philip Laing said: “The clock has been ticking on the UK sovereign debt rating ever since the atrocious borrowing numbers outlined in the April 2009 budget.”
Remarking that an overall financing requirement of up to 14 per cent of GDP had left a “dark cloud” over the country’s bond market this year, Laing said a hung parliament would extend uncertainty over spending.
He added: “The bond market would favour a decisive election win that would produce a clear-the-decks budget and also appease the ratings agencies.” Chancellor Alistair Darling plans to raise public spending by £31bn – two per cent in real terms – in 2010/11 before aiming to halve the budget deficit by April 2014.