UK economy: S&P could lift AAA downgrade threat

George Osborne In Thought

The ratings agency Standard & Poor's is considering lifting its threat to Britain's AAA credit rating in a boost to the chancellor George Osborne ahead of Thursday's autumn statement.

S&P said it had been surprised by the strength of the British economy this year and would re-think its view of the UK provided the recent performance appeared sustainable.

"As others, we have been surprised on the upside on the growth performance so far this year on the UK," said Moritz Kraemer head of sovereign ratings for S&P's Europe, Middle East, Africa region.

"What we will be analysing and discussing will be (whether) our assessment of the sustainability of this particular pattern of growth would warrant a rating action one way or the other."

Britain was stripped of its coveted AAA rating by two of the three main ratings agencies – Moody's and Fitch – during 2013 after sluggish growth raised concerns about the state of the public finances. The UK retained its top-notch status with S&P but was put on negative watch – a warning that action would be taken unless there were signs that of improvement in the economy and the budget deficit.

News of a strong performance by the UK's service sector in November means the City is convinced that the strong growth seen in the second and third quarters of 2013 will extend into the final quarter of 2013, allowing Osborne to adopt an upbeat tone in Thursday's speech. Sterling rose on the foreign exchanges after Kraemer's comments rising against both the US dollar and the euro.

Kraemer said downgrades were still likely to outnumber upgrades in 2014, with S&P still concerned about the health of the eurozone.

"We still have a mild downside bias in the eurozone. (But) In a nutshell we should see fewer rating moves in 2014 than this year," Kraemer said.

Powered by Guardian.co.ukThis article was written by Larry Elliott, economics editor, for theguardian.com on Wednesday 4th December 2013 16.02 Europe/London

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