UK says its rating is safe after Budget

City A.M. Reporter
THE British government’s latest borrowing forecasts should not give credit rating agencies any reason to change the nation’s sovereign debt rating, the head of the Debt Management Office (DMO) said yesterday.

Britain’s record high debt has caused disquiet among investors, but lower borrowing forecasts in finance minister Alistair Darling’s budget helped soothe concerns, and rating agency Fitch described them as “inching in the right direction”.

Asked whether Britain’s triple-A rating was safe, Robert Stheeman said he saw no reason why it should be altered, as the Budget contained few surprises.

“I still believe the rating agencies are unlikely to do anything this side of an election. And I don’t see any reason for them to take any action on our rating, in particular after today's budget,” Stheeman said.

Standard & Poor’s, which put the UK's top-notch rating on a negative watch after last year's budget, said it would wait to see the deficit-cutting plans of a new government before making a judgement on the sovereign rating.

Stheeman’s comments came after the DMO said it would sell £187.3bn ($281.1bn) of gilts in the 2010/11 fiscal year, much lower than the £227.6bn it sold in 2009/10 and in line with the consensus forecast in a Reuters poll.

But the market did not take kindly to the remit as some strategists had expected even lower issuance, and gilt futures ended the day more than half a point down while the yield on ten-year gilts was six basis points higher. Although last year’s gilt issuance was the highest it had ever been, it was mostly offset by the Bank of England’s quantitative easing programme, leaving the market just over £42bn of gilts to absorb in net terms.

Stheeman said he did not expect to have any difficulty selling gilts in 2010/11 and reckoned there was unlikely to be a failed auction.

“We’ve tried to structure this remit in such a way that it is deliverable,” he said. “A failed auction, or an uncovered auction occurs when there is some very specific market dislocation, often to do with things that are nothing to do with our remit programme or the size of the programme.”