Thursday, May 21, 2009
May 21 (Bloomberg) — Britain may lose its AAA credit rating for the first time as government finances deteriorate in the worst recession since World War II.
Standard & Poor’s lowered its outlook on Britain to “negative” from “stable” and said the nation faces a one in three chance of a ratings cut as debt approaches 100 percent of gross domestic product. The pound fell the most in four weeks against the dollar, the FTSE 100 Index slid as much as 2.8 percent and the cost of insuring U.K. debt against default rose.
Britain needs to sell a record 220 billion pounds ($344 billion) of bonds in the fiscal year through March 2010 as the economy contracts and Chancellor of the Exchequer Alistair Darling  predicts that the budget deficit will reach 175 billion pounds, or 12.4 percent of GDP. The U.K.’s worsening finances parallel the public perception of Prime Minister Gordon Brown , whose Labour government has trailed the Conservative opposition for more than a year in polls.
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“Somebody will have to tackle the finances in the U.K., which has not been done at present,” said David Scammell , a money manager at Schroder Investment Management Ltd. in London, where he helps oversee $158 billion in assets. “The budget that we have is just unacceptable. You need a political will to deal with this enormous problem.”
Gilts fell, pushing the yield on the 4.5 percent note due March 2019 up as much as 13 basis points to 3.71 percent, before rebounding to 3.63 percent at 1:58 p.m. in London after the U.K. successfully sold a record 5 billion pounds of five-year notes. The budget deficit increased to 8.5 billion pounds last month, the most for April since records began in 1993, the Office for National Statistics said in London today.
Britain would become the fifth western European Union nation to lose its rating because of the economic slump, following Ireland, Greece, Portugal and Spain. The U.K.’s debt load next year will be 66.9 percent of GDP, exceeding Canada’s 29.1 percent and Germany’s 58.1 percent, according to April 22 forecasts by the International Monetary Fund. The U.S. will be at 70.4 percent, and the 16-nation euro area at 68 percent, with France a
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