S&P lowers UK's credit outlook to negative from stable

From MarketWatch:

Standard & Poor's on Thursday lowered its credit outlook on the U.K. to negative from stable for the first time ever in view of the country's swelling debt, which may expand even as the economy recovers.

The move by Standard & Poor's raises the prospect not only of a credit-rating downgrade in Britain but a lowering of the outlook in the U.S., which has taken a similar path of big spending and quantitative easing to escape the credit-led recession.

"I think there will be a downgrade on the U.K. and I think there will be a downgrade on the U.S. outlook from one of the Big Three" credit-rating firms, said Stephen Gallo, head of market analysis at Schneider Foreign Exchange.


S&P kept the country's AAA rating intact, but the outlook signals that the country's credit rating could be lowered within the next two years.

Rival agency Moody's Investors Service on Thursday said it is not reviewing the U.K.'s rating.

S&P already has lowered the ratings of other European countries, including those of Spain, Ireland, Greece and Portugal.

I have discussed how AAA-rated corporations were becoming an endangered species. Well, AAA-rated sovereigns may join the same list.

Any downgrade of Britain's rating will increase financing costs for the government and likely weaken the currency. However, the market generally tends to price in a lot of the sovereign rating changes well ahead of time.


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