LONDON: Britain has about a one in three chance of losing its AAA sovereign credit rating, a Reuters poll found on Thursday, a move that would put huge pressure on finance minister George Osborne who is sticking with austerity even as the recession deepens.
"A worsening growth outlook threatens (Britain's) fiscal goals," said Nick Stamenkovic, macro strategist at RIA Capital Markets in Edinburgh. "The risk of losing AAA status is rising."
The poll of over 60 economists was taken after news on Wednesday that the economy contracted by 0.7 percent in the second quarter, deeper than even the most pessimistic forecast, and shrinking faster than the ailing euro zone.
A top-notch AAA rating in theory helps keep government borrowing rates low by guaranteeing investors that no matter what, their debts will be repaid. The consensus probability of a downgrade, 35 percent, is up from 25 percent polled in March.
A slight majority said Osborne should not relax his hotly-contested fiscal austerity programme, which aims to eliminate the budget deficit, at 8 percent of gross domestic product (GDP), within five years.
The Bank of England will have to pick up the slack as the government proceeds with huge spending cuts and public service layoffs, increasing its bond purchase programme to a total of 400 billion pounds, probably in November, the poll found.
Aggressive fiscal tightening in euro zone countries such as Spain and Greece have led to even deeper economic contractions there, with Greece bordering on depression and facing a very real threat of ejection from the 17-member euro zone.
Both Moody's Investors Service and Fitch Ratings have a negative outlook for Britain's triple-A debt rating, warning that it could lose it in the next couple of years if the government relaxes its fiscal stance.
Forecasts in the Reuters Poll, taken from a sample of economists and bond strategists this week, ranged from a low probability of just 5 percent of a sovereign rating downgrade in the next year to a very high 80 percent.
Analysts at large British banks gave a consensus probability of 33 percent while respondents outside the UK were generally more pessimistic, giving a higher 40 percent probability.
Yet with the British economy flatlining for most of the past year and dipping even deeper into recession in the three months to June, still only 16 of 43 economists said the government should relax its austerity programme.
"It's bonkers policy," said Grant Lewis, head of research at Daiwa Capital Markets and one of the 16. "If they want some growth before the election they are going to have to look at changing tack."
The economy is expected to grow 0.6 percent in the current quarter, boosted by tourism and revenue from ticket sales as London hosts the 2012 Olympic Games, but will only see tepid growth after that for some time.
MORE BOE MONEY PRINTING
The additional 25 billion pound injection of new money into the banking system will most likely come in November, the poll found, when the Bank of England finishes the latest leg of its announced 375 billion worth of purchases.
That would take the size of the programme to about one-quarter of Britain's 1.6 trillion pound economy. "The MPC is likely to expand QE markedly further in coming quarters, and if the euro area crisis worsens markedly, then the MPC may also cut the Bank Rate," said Michael Saunders at Citi.
Citi, which forecasts a 90 percent probability that Greece will have to leave the euro zone, is one of five banks institutions polled by Reuters who see a total spend of 500 billion pounds.
indiatimes.com
"A worsening growth outlook threatens (Britain's) fiscal goals," said Nick Stamenkovic, macro strategist at RIA Capital Markets in Edinburgh. "The risk of losing AAA status is rising."
The poll of over 60 economists was taken after news on Wednesday that the economy contracted by 0.7 percent in the second quarter, deeper than even the most pessimistic forecast, and shrinking faster than the ailing euro zone.
A top-notch AAA rating in theory helps keep government borrowing rates low by guaranteeing investors that no matter what, their debts will be repaid. The consensus probability of a downgrade, 35 percent, is up from 25 percent polled in March.
A slight majority said Osborne should not relax his hotly-contested fiscal austerity programme, which aims to eliminate the budget deficit, at 8 percent of gross domestic product (GDP), within five years.
The Bank of England will have to pick up the slack as the government proceeds with huge spending cuts and public service layoffs, increasing its bond purchase programme to a total of 400 billion pounds, probably in November, the poll found.
Aggressive fiscal tightening in euro zone countries such as Spain and Greece have led to even deeper economic contractions there, with Greece bordering on depression and facing a very real threat of ejection from the 17-member euro zone.
Both Moody's Investors Service and Fitch Ratings have a negative outlook for Britain's triple-A debt rating, warning that it could lose it in the next couple of years if the government relaxes its fiscal stance.
Forecasts in the Reuters Poll, taken from a sample of economists and bond strategists this week, ranged from a low probability of just 5 percent of a sovereign rating downgrade in the next year to a very high 80 percent.
Analysts at large British banks gave a consensus probability of 33 percent while respondents outside the UK were generally more pessimistic, giving a higher 40 percent probability.
Yet with the British economy flatlining for most of the past year and dipping even deeper into recession in the three months to June, still only 16 of 43 economists said the government should relax its austerity programme.
"It's bonkers policy," said Grant Lewis, head of research at Daiwa Capital Markets and one of the 16. "If they want some growth before the election they are going to have to look at changing tack."
The economy is expected to grow 0.6 percent in the current quarter, boosted by tourism and revenue from ticket sales as London hosts the 2012 Olympic Games, but will only see tepid growth after that for some time.
MORE BOE MONEY PRINTING
The additional 25 billion pound injection of new money into the banking system will most likely come in November, the poll found, when the Bank of England finishes the latest leg of its announced 375 billion worth of purchases.
That would take the size of the programme to about one-quarter of Britain's 1.6 trillion pound economy. "The MPC is likely to expand QE markedly further in coming quarters, and if the euro area crisis worsens markedly, then the MPC may also cut the Bank Rate," said Michael Saunders at Citi.
Citi, which forecasts a 90 percent probability that Greece will have to leave the euro zone, is one of five banks institutions polled by Reuters who see a total spend of 500 billion pounds.
indiatimes.com
No comments:
Post a Comment