UK's credit rating not at risk, says agency

The UK's gold-plated triple A credit rating is not at immediate risk as the British government steps up its drive to rebuild the shattered public finances, a leading agency said today.

Moody's said it believed Britain's economy was strong enough to withstand imminent swingeing public sector spending cuts and hang on to its top rating.

However, the group warned that the UK was still vulnerable to further economic and stock market shocks which could threaten the AAA rating, which it has so far maintained since the 1970s.

The agency's annual credit report on the UK said the recovery still faced major challenges as the banking sector is yet to return to normal following the financial crisis, and as export customers, such as those in Europe, struggle.

Kenneth Orchard, lead analyst for Moody's, said Britain's economy appeared "sufficiently flexible and robust" to grow at a moderate pace, despite these challenges and tough Government austerity measures.

He added: "Moody's stable outlook on the UK's AAA rating - implying that the rating is not expected to change in the foreseeable future - is largely driven by the Government's commitment to stabilise and eventually reverse the deterioration in its financial strength."

But the UK has lost its "cushion" since the banking meltdown and recession left it a ballooning deficit, according to Moody's.

Figures due tomorrow from the Office for National Statistics (ONS) are expected to confirm more pain for public finances in August, albeit with the pace of borrowing easing.

Philip Shaw, economist at Investec Securities, is pencilling in a further £13.1bn (€15.6bn) of borrowing last month, marking a small improvement on a year earlier.

Next month's spending review from the coalition government aims to reduce the debt to a sustainable level.

But it will still take years to get the public purse in order and Moody's said this left the UK fragile.

A relapse in the banking sector and out-of-control inflation pose potential risks to the UK given the state of national finances, the agency said.

Moody's first gave the UK its AAA rating in 1978, which has remained unchanged since then.

But agencies placed a so-called "negative outlook" on the rating in the aftermath of the financial crisis and as a result of towering national debt.

Last year, the world's biggest agency, Standard & Poor's, said the gold standard rating was under threat for the first time since it began assessing UK sovereign debt more than 30 years ago.

Prime credit ratings are vital to enable countries to borrow at affordable rates.

If a credit rating is downgraded, it could lead to higher borrowing costs as it makes international investors less likely to buy British Treasury bonds.

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