MercoPress. South Atlantic News Agency

UK could loose its premium credit ratings because of soaring debt

The United Kingdom’s premium credit rating is under threat without action to tackle soaring debt, a leading ratings agency has said. Standard & Poor's has warned that debt could rise to 100% of output by 2013, which could lead to the UK losing its coveted 'AAA' status.

S&P has held the rating for the moment, but lowered its outlook on the UK to “negative” because of worries over the fast-deteriorating public finances and how long it could take to repair the hole.

Analyst David Beers said: “Our outlook revision on the UK reflects that, even assuming additional fiscal tightening, the net general government debt burden could approach 100% of GDP and remain near that level in the medium term.”

The warning came as official figures showed net borrowing surging to a worse-than-expected £8.5 billion in April - over four times higher than last year - as tax receipts dive and spending rises. Chancellor Alistair Darling expects to borrow a record £175 billion this year, with debt as a share of GDP peaking at 79% in 2013/14.

When S&P last looked at its ratings in January it assumed the debt burden would rise from about 49% of GDP in 2008 to 83% in 2013.

The Government will be issuing a record level of gilts - Government-guaranteed bonds - this year to fund its borrowing. The comments from S&P failed to derail the largest ever gilt auction which took place Thursday morning. The Treasury's debt management office, received £13 billion in bids for £5 billion worth of five-year gilts.

Mr Beers said: “The rating could be lowered if we conclude that, following the election, the next Government's fiscal consolidation plans are unlikely to put the UK debt burden on a secure downward trajectory.”

He added that the outlook could be shifted from negative to 'stable' if “comprehensive measures” were taken to address the fiscal problems, or if they turned out “more benign than we currently anticipate”.

A Treasury spokesman said S&P had held the AAA rating due to the UK's “wealthy, diversified economy” a “high degree of fiscal and monetary flexibility” and “relatively flexible product and labour markets”. He added: ”The Budget set out a clear plan to halve the deficit within five years. That judgment was based on a deliberately cautious view of the public finances.