Standard & Poor's revised its outlook for Britain's AAA credit rating to negative on Thursday, raising the chances of a downgrade that would be politically embarrassing for Chancellor George Osborne.
S&P was the last of the three major credit rating agencies to maintain a stable outlook for Britain, and the move comes just over a week after Chancellor George Osborne said he would no longer be able to cut Britain's net debt by 2015.
"The outlook revision reflects our view that we could lower the ratings on the UK within the next two years if fiscal performance weakens beyond our current expectations, S&P said in a statement.
"We believe this could occur in particular as a result of a delayed and uneven economic recovery, or a weakening of political commitment to consolidation," it added.
Britain's finance ministry stressed that S&P backed the country's current deficit-reduction plan.
"Standard & Poor's endorse the Government's ‘strong commitment to implementing the fiscal mandate' and specifically warn against slowing ‘the pace and extent of fiscal consolidation'. It is because we have stuck to that commitment that the deficit is down," a spokesman said.
British government bond trading had largely finished for the day when S&P made its announcement.
Alan Clarke, UK economist at Scotiabank, said that Britain was at risk of a downgrade from one of the major ratings agencies if the economy does not perform better than the government currently forecasts.
"The UK hasn't been downgraded yet, but it is getting closer," he said. "The UK needs to stop disappointing on growth and the public finances. However, the UK has suffered persistent slippage since mid-2010 so the odds are skewed towards a downgrade."
(Reporting by David Milliken and Daniel Bases; Editing by Catherine Evans)
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