S&P Lowers Britain's Debt Outlook

Wall Street Journal ^ | May 21, 2009 | Alistair MacDonald and Neil Shah

[reaganaut1]

Ratings agency Standard & Poor's shocked investors Thursday with a formal warning that the U.K. must get its finances in order or lose its coveted triple-A credit rating, underscoring the monumental challenges the country faces as it seeks to dig its economy out from under the wreckage of the financial crisis.

U.K. stocks plunged and the pound slid against the dollar after S&P announced that it had changed its outlook for the U.K.'s credit rating to negative -- meaning that a downgrade, while not imminent, could come sometime in the next few years.

S&P said it will revisit the U.K.'s rating after the country chooses a new Parliament in elections that must be called by June 2010, effectively tasking the next government with laying out a credible plan to close a gaping budget deficit and stem a sharp rise in the U.K. national debt.

"This is a gun to the head of the next administration to get the public finances back in order," said Russell Silberston, head of global interest rates at Investec Asset Management in London.

The benchmark FTSE 100 index fell 2.7% on the news to 4346.07. The pound fell from a six-month high of $1.5808 to a low of $1.5521, but recently stood at $1.5637.

Prices of U.K. government bonds, or gilts, also took a beating, pushing their yields higher and effectively raising the government's borrowing costs. The yield on the 10-year gilt jumped to 3.62% from about 3.58% on Wednesday even as yields on other government bonds fell.

S&P's move refocused attention on the parlous state of government finances in the U.K., which has put up more than £1 trillion ($1.575 trillion) to prop up its banks and bail out its economy even as a sharp recession cuts deeply into tax revenues.

[reaganaut1]

Coming to the U.S. in a few years, unless Obama is thrown out and/or the Republicans retake the House or Senate (and show more discipline than the last time they were in power).

[blam]

"Coming to the U.S. in a few years, unless Obama is thrown out and/or the Republicans retake the House or Senate (and show more discipline than the last time they were in power). "

Years?

Dollar Is Dirt, Treasuries Are Toast, AAA Is Gone: Mark Gilbert

[edcoil]

S & P was one of the agencies that rated all the bad stocks and bonds and sold them to investors.

Why should we believe anyone at S&P.

[spald]

Bloomberg.com is reporting "U.K. May Lose AAA Rating at S&P as Government Debt Approaches 100% of GDP"

Can government debt really approach 100% of GDP? What is the USA debt/gdp ratio? About 15%, right?

[Poison Pill]

S&P announced that it had changed its outlook for the U.K.'s credit rating to negative -- meaning that a downgrade, while not imminent, could come sometime in the next few years.

See, Ok, um it's not a downgrade, ok. It's just that things are Soooooo bad that we might downgrade later if this really crappy situtation doesn't improve in a couple years. But, were not repeat NOT downgrading in the sense that we are issuing an official downgrade now. Got it?

[genghis]

debt/gdp about 43% headed to 80 in five years
after that it is anyone’s guess.

[rabscuttle385]

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[lainie]

S&P was one of the agencies that rated all the bad stocks and bonds and sold them to investors. Why should we believe anyone at S&P.

And furthermore, they get to force England to wipe its parliament clean, and no one's crying foul?