Oct. 3 (Bloomberg) -- The U.K.’s top credit rating was affirmed by Standard & Poor’s, which said it it expects the coalition government to enact “the bulk” of its plan to reduce the budget deficit.
“We expect the U.K. political consensus on fiscal policy will broadly hold for the near future, and that the government will implement the measures specified in its 2010 fiscal consolidation program,” S&P said in a statement in London today. It said the outlook on the AAA rating is “stable.”
The ratings company also said Britain’s “lackluster” recovery will face pressure from Chancellor of the Exchequer George Osborne’s fiscal squeeze. The economy may expand about 1.8 percent on average through 2014, less than the 2.5 percent rate forecast by the Office for Budget Responsibility, the government’s fiscal watchdog, it said.
Speaking at the Conservative Party conference in Manchester today, Osborne said he’ll freeze local taxes for a second year to help voters struggling with falling living standards as he implements the deepest cuts since World War II. He also said he will stick to his deficit-reduction plan as scaling it back would amount to “abandoning” credibility.
Bank of England policy makers debated adding more stimulus to the economy last month in a meeting that was “finely balanced.” They will probably leave the key interest rate and bond-purchase program on hold this week, two surveys of economists by Bloomberg News show.
“Monetary policy should, in our view, provide some support to the economy, as low interest rates keep private-sector debt- servicing costs low, and the currency at competitive levels,” S&P said.
The yield on 10-year gilts fell 6 basis points to 2.37 percent as of 12:10 p.m. in London. The pound fell for a second day against the dollar, slipping 0.5 percent to $1.5512, It pound weakened 0.2 percent versus the euro to 86.05 pence.
The U.K. suffered a credit-rating scare in 2009, when S&P lowered the outlook to “negative” amid concerns on the public finances. The outlook was restored to “stable” in October 2010, five months after the coalition government took office.
--With assistance from Garth Theunissen in London. Editors: Fergal O’Brien, Eddie Buckle
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