The rating agency said the assessment was based on the UK’s mounting debt
Standard & Poor's (S&P), the rating agency, downgraded its outlook on the UK economy to negative from stable.
The country’s 'AAA' long-term and 'A-1+' short-term sovereign credit ratings were affirmed.
The rating agency said the assessment was based on the UK’s mounting debt, which, according to S&P, could reach 100% of GDP.
S&P’s credit analyst David Beers said: ‘These projections reflect our more cautious view of how quickly the erosion in the government's revenue base may be repaired, the extent to which the growth in government spending can be curtailed, and consequently the pace at which historically high fiscal deficits are likely to narrow.’
The projections also included estimates of the potential gross fiscal cost of government support to the banking system. S&P estimated this to be in the region of £100bn to £145bn, or 7%–10% of 2009 estimated GDP.
‘Taken together, these factors could, in our opinion, result in a doubling of the general government debt burden to nearly 100% of GDP by 2013. A government debt burden of that level, if sustained, would in Standard & Poor's view be incompatible with a 'AAA' rating,’ added Beers.
Last month's budget announcements underscored that UK public finances are deteriorating rapidly, said the agency.
However, S&P said the ratings on the UK continue to be supported by its wealthy, diversified economy; a high degree of fiscal and monetary policy flexibility; and its relatively flexible product and labour markets.
Beers said: ‘The outlook could be revised back to stable if comprehensive measures are implemented to place the public finances on a sustainable footing, or if fiscal outturns are more benign than we currently anticipate.
Ian McCafferty, the CBI’s Chief Economic Adviser, said: ‘This underlines the importance of the government coming up with a clear and credible strategy to get the public finances back into balance.’
‘With the size of the gilt market expected to double over the next few years and debt as a percentage of GDP expected to reach 80 per cent by 2013, it is running a risk with the willingness of investors to finance the UK’s debt.’
‘Some tough calls are going to need to be made in the area of public service reform if we are to return to fiscal health without undermining our competitiveness and smothering the fragile recovery,’ added McCafferty.