Even as the Queen’s Diamond Jubilee BBC Concert rocked on outside Buckingham Palace (amid the slightly worrying news that the Duke of Edinburgh is in hospital), some bad economic news came in — rating agency Egan-Jones has cut the UK’s credit rating to AA-minus with a negative outlook, from AA.
‘The over-riding concern is whether the country will be able to continue to cut its deficit in the face of weaker economic conditions and a possible deterioration in the country’s financial sector,’ Egan-Jones said in its statement, according to Reuters. ‘Unfortunately, we expect that the UK’s debt-GDP [ratio] will continue to rise and the country will remain pressed.’
Egan-Jones is a relatively minor credit rater, and the UK still holds top ratings with the three agencies that matter most — Moody’s, Standard & Poor’s and Fitch — but this surely won’t make George Osborne sleep easier tonight. Egan-Jones’s action may unnerve markets and raise expectations of similar downgrades from other agencies. The Chancellor has said several times that it’s his austerity programme that’s protected the country from credit rating cuts so far.
Egan-Jones, which last week downgraded Italy and Spain, is particularly worried about the impact of the EU financial meltdown on the banking sector. ‘The major problem for the UK is that Europe’s banking crisis does not appear to be abating as evidenced by the miserable results of most [eurozone] banks,’ the agency said.
It expects the UK’s debt-GDP ratio to rise to 104 per cent this year, 110 per cent next year and 116 per cent in 2014. GDP, meanwhile, is expected to slide 1.5 per cent this year and the next. All this, along with Spain’s ongoing bailout question and the recent weak US jobs and factory orders data, mean that Osborne may have more than one restless night.