UK faces credit downgrade, warns Pimco

THERE is an 80 per cent chance Britain will lose its “AAA” credit rating if drastic action to reduce the budget deficit is not taken, according to Pacific Investment Management Co (Pimco).

Scott Mather, head of the American investment group’s global portfolio management, slammed the UK’s debt reduction plan, saying it is “lacking in conviction and lacking in details.”

He believes it is “a question of when, not if” the rating is slashed, adding: “Based on what we know today about the debt trajectory and about the inability to adjust that, I think it’s greater than a 50 per cent likelihood. More like 80 per cent.”

A downgrade of the UK’s international debt rating would be a huge embarrassment to the Treasury. It would also push up the cost of borrowing to fund the UK’s record £178bn budget deficit.

Experts fear the higher cost could trigger the first debt crisis since the 1970s as the UK could struggle to pay back massive interest payments on its debt.

On Tuesday, Pimco, the world’s biggest bond fund, said it would cut its exposure to government bonds in the UK and US amid fears over their huge levels of debt.