UK
economic outlook slumps on eurozone crisis
UK
may lose triple-A rating if GDP growth continues to disappoint,
Moody's ratings agency warns
31
July, 2012
The
UK's economic outlook has weakened as a result of the eurozone debt
crisis, Moody's has said in a fresh blow to the chancellor George
Osborne.
The
ratings agency cut its forecasts for GDP growth, after figures last
week showed the UK economy shrank by 0.7% in the second quarter –
far more than expected.
Moody's
expects GDP to grow by just 0.4% this year and 1.8% in 2013, which is
considerably more optimistic than many economists, who expect the
economy to contract this year. Gerard Lyons at Standard Chartered
said after the GDP figures were published: "I think it's
inconceivable that there will be positive growth this year."
Moody's
warned on Tuesday that Britain could lose its triple-A rating if
economic growth did not meet expectations, and if the country's debt
burden increased. It said the weaker economic environment could
challenge the government's efforts to reduce debt in the coming
years.
The
main issues facing the UK economy were the impact of rising prices on
real incomes, "the confidence shock" from the eurozone, and
a greater impact from the financial crisis on output than previously
thought.
"The
UK's outstanding debt places it amongst the most heavily indebted of
its Aaa-rated peers, alongside the United States and France whose
triple-A ratings also carry a negative outlook," it added.
Moody's expects gross government debt to GDP to peak at just under
95% in 2014 or 2015, before it starts to come down – higher and
later than in most other triple-A rated countries.
While
the UK enjoys "safe haven" status, Moody's said there was a
growing risk that the weaker macroeconomic outlook could damage
market confidence in the government's austerity plan and cause the
cost of borrowing to rise.
The
agency applauded Osborne for sticking to Plan A, saying the UK's
triple-A rating was supported by the fact that "the current
fiscal consolidation programme remains intact and the government has
demonstrated its willingness and ability to take action to address
shortfalls".
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