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Global Credit Research - 14 Nov 2012
London, 14 November 2012 -- In its annual credit report on the United Kingdom, Moody's Investors
Service says that the UK's Aaa government debt rating, and current
negative outlook, continue to be underpinned by significant structural
strengths, but cautions that the government's efforts to achieve
fiscal consolidation and reduce debt over the next few years are being
hampered by weaker economic prospects as well as by the risks posed by
the ongoing euro area sovereign debt crisis. Although these challenges
are currently reflected in the negative outlook on the UK's sovereign
rating, Moody's will revisit the Aaa rating and outlook in
the first few months of 2013 to assess the impact of these challenges
and of the government's upcoming Autumn Statement.
The rating agency's report is an annual update to the markets and
does not constitute a rating action. The report can be accessed
via the link provided at the end of this press release.
Moody's new report highlights important strengths that underpin the UK's
Aaa rating, including: (1) a large, diversified and
highly competitive economy, flexible labour force and structural
reforms that position it well to return to its long-term trend
growth rate of 2-2.5% over the medium term;
(2) a favourable debt structure, including low refinancing risk
and a strong domestic investor base; (3) the commitment to fiscal
consolidation, which is heavily weighted toward expenditure cuts;
and (4) very high institutional strength, including a wide range
of monetary and fiscal policy tools. Moody's expects these
strengths to persist over the medium to long term.
The UK's growth shortfalls have clearly been credit-negative
and have reduced the sovereign's ability to absorb further fiscal
or economic shocks, but without leading to rating implications.
Despite the UK's clear political commitment to fiscal consolidation,
the weaker macroeconomic environment will create headwinds for revenue
growth and increase the risk that the country's debt metrics will
not stabilise within the next 3-4 years. This issue was
the main driver of Moody's decision to change the rating outlook
on the UK's Aaa rating to negative in February 2012 and remains
a critical rating driver for the sovereign rating going forward.
In Moody's opinion, the UK government's most significant
policy challenge is balancing the need for fiscal consolidation against
the need for economic stimulus. The rating agency expects that
the upcoming Autumn Statement, which will be released in December
2012, will provide greater clarity on how the government plans to
manage this balancing act. Moody's intends to assess the
Aaa rating and negative outlook in the first few months of 2013,
to take account of the guidance the Statement offers on (1) the likely
speed of fiscal consolidation, (2) the growth outlook and (3),
most importantly, the likelihood that the debt trajectory will stabilise
and start to decline within the rating horizon. Moody's assessment
will also take into account the evolution of the ongoing crisis in the
euro area, which was the other main driver of the outlook change
on the UK's Aaa rating earlier this year. Although the UK
is outside the euro area, the crisis has the potential to affect
the UK through three channels: trade, the financial sector
as well as consumer and investor confidence.
The report can be accessed via this link: http://www.moodys.com/research/United-Kingdom-Government-of-Analysis--PBC_145450
NOTE TO JOURNALISTS ONLY: For more information, please call
one of our global press information hotlines: London +44-20-7772-5456,
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0800-891-2518, or Buenos Aires 0800-666-3506.
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web site at www.moodys.com.
Sarah Carlson
VP - Senior Credit Officer
Sovereign Risk Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Bart Oosterveld
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's issues annual credit report on UK
No Related Data.
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