Moody’s Analyst: Weak Growth, Fiscal Slips Could Lose UK ‘AAA’

The wonder is how Moody’s keeps it’s prized credibility and Sarah Carlson her prized job.

Moody’s Analyst: Weak Growth, Fiscal Slips Could Lose UK ‘AAA’

Jun 8 (MNI) — The UK could lose its prized ‘Aaa’ credit rating if growth remains weak and the coalition government fails to meet its fiscal consolidation targets, a senior analyst at ratings agency Moody’s has told Market News International.

Sarah Carlson, VP-Senior Analyst at Moody’s, told MNI that weak growth and fiscal slippage could see the country’s ‘debt metrics’ deteriorate to a point that would trigger a downgrade.

“Although the weaker economic growth prospects in 2011 and 2012 do not directly cast doubt on the UK’s sovereign rating level, we believe that slower growth combined with weaker-than-expected fiscal consolidation efforts could cause the UK’s debt metrics to deteriorate to a point that would be inconsistent with a Aaa rating,” she said.

Carlson also said that due to their sheer size the UK’s austerity plans have a degree of ‘implementation risk’.

“As is true of any large fiscal consolidation effort, the government’s austerity plans entail some implementation risk. Moreover, a multi-year austerity programme of this magnitude is a political challenge,” she said.

Carlson’s comments come in a week of frenzied debate as to whether UK Chancellor of the Exchequer George Osborne’s fiscal consolidation plans are working.

At present, the government aims to close Britain’s structural deficit will by the end of 2014-15, slashing departmental budgets by almost stg100 billion over four years.

But a weaker-than-expected Q1 GDP outturn and a slew of disappointing economic data since then, has led several economists to question the wisdom of such a rapid deficit-reduction plan while others have said there is no other choice.

On Sunday, a group of leading economists led by Prof. Tony Atkinson of Oxford and centre-left pressure group Compass wrote a letter to the Observer newspaper questioning the wisdom of the current plan.

Carlson said that the government’s creation of a cross-departmental committee to monitor progress in public spending cuts could be useful in reinforcing commitment to consolidation.

“The creation of the Public Expenditure Cabinet Committee (PEX) – a cross-government spending committee that will monitor the progress of individual departments against their budget plans – has the potential to be a promising institutional change that could further bolster confidence in the government’s ability to follow through with its ambitious austerity programme.”

On Monday, a group of centre-right economists wrote a letter to the Telegraph newspaper which argued against relaxing austerity measures.

In its Article IV Consultation Report on the UK released Monday, the IMF said that there had been unexpected weaknesses in UK economy over the past few months but labelled the troubles temporary and advised the government to keep to its current deficit-reduction plan.