The U.K. had its credit rating outlook revised to stable from negative by Standard & Poor’s, which said near-term downside economic risks have reduced.
(Bloomberg) — The U.K. had its credit rating outlook revised to stable from negative by Standard & Poor’s, which said near-term downside economic risks have reduced.
The credit assessor affirmed the country’s AA rating.
Expectations for public finances have improved in recent months. Despite soaring debt costs and billions in government subsidies to help consumers and businesses through the energy crisis, figures next week are expected to show that the budget deficit came in well below official forecasts in the fiscal year ended March.
“We expect the U.K. economy to contract modestly this year, but we believe near-term downside economic risks have reduced,” S&P said in a statement. “The government’s decision to abandon most of the unfunded budgetary measures proposed in September 2022 has bolstered the fiscal outlook,” as has a drop in energy prices.
Still, medium-term growth will be below historical averages, S&P said.
Tax receipts are proving much stronger than expected and economists are increasingly optimistic that the UK will avoid a recession this year.
That gives Prime Minister Rishi Sunak room to deliver further giveaways ahead of general election that is due by January 2025 but will likely be earlier. The Conservatives are currently more than 10% behind the Labour opposition in opinion polls.
The budget deficit, which swelled to a peacetime high of 15% of GDP during the pandemic, is now around a third of that level. Government debt is nonetheless close to 100%, the highest ratio since the early 1960s.
The public finances could still be thrown off course if recent strains in the bank industry prompt lenders to further restrict the supply of credit.
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