Fallout: The Financial Crisis

U.K. outlook downgraded, U.S. next?

Stephen Beard May 21, 2009
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Fallout: The Financial Crisis

U.K. outlook downgraded, U.S. next?

Stephen Beard May 21, 2009
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Kai Ryssdal:Standard & Poor’s, the credit rating agency, made a ratings announcement today. Something it does probably dozens of times a day. This one’s a bit different though. It lowered its assessment of the entire U.K. economy. S & P says the country’s public finances are deteriorating faster than expected. And government borrowing has skyrocketed. Sound familiar? From London, Stephen Beard reports.


STEPHEN BEARD: Britain has never defaulted on its government debt. The UK has always enjoyed the top credit rating — AAA. But today Standard and Poors revised the UK’s outlook down from stable to negative. Economist Andrew Hilton:

ANDREW HILTON: This is a warning that if the government doesn’t get the UK’s finances in order, the UK also faces a downgrade from triple A.

That would make it more costly to borrow. And this year the UK needs to borrow more than ever before, a total of $330 billion. That could already be more difficult, just as a result of today’s lower rating. Peter Hahn of the Cass Business School.

PETER HAHN: It’s almost a warning for international bond holders to say: beware! So investors are going to be a bit circumspect about buying UK government bonds tomorrow more than they were today.

This could have implications for the U.S. S & P said it was worried that British government debt could reach 100 percent of GDP within a few years. Neil MacKinnon of the ECU currency group says there are similar forecasts for America.

NEIL MACKINNON: This is a shot across the bows for the U.S. Treasury and U.S. policymakers. Certainly debt/GDP levels of 100 percent, I think, are not compatible with a triple A rating.

The U.S. economy is five times bigger than Britain’s. With the world’s main reserve currency, the U.S. is in a much stronger position than the UK. But Mackinnon says the recent weakness of the dollar suggests that markets are starting to worry a little about America’s credit.

In London, this is Stephen Beard for Marketplace.

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