Goodbye AAA status?

The chances of the UK losing its coveted AAA status have increased after Standard & Poor’s (S&P) became the last of the big three ratings agencies to issue a ‘negative outlook’.

S&P warned that the UK could lose its AAA status if “fiscal performance weakens beyond our current expectations”.

They follow Moody’s and Fitch who both issued a negative outlook for the UK economy in the first half of the year.

If the UK lost its AAA rating, the only major global economies that would still have the top rating would be Germany and Canada.

In a sense, this means that the UK losing the AAA rating would be less of an issue.

Investors would continue to view the UK as a ‘safe haven’ for gilt investments, as relative to other options the UK would still be viewed as very financially strong.

S&P explained, “The outlook revision reflects our view that we could lower the ratings on the UK within the next two years if fiscal performance weakens beyond our current expectations,

“We believe this could occur in particular as a result of a delayed and uneven economic recovery, or a weakening of political commitment to consolidation.

“We expect economic growth to rise slowly in the medium term, with net general government debt as a percentage of GDP (annual economic output) continuing to rise in 2015, instead of stabilising in 2014 as previously expected.”

Photo credit: Flickr/ell brown