Could the UK debt rating be under pressure?
Yesterday we saw the Portuguese government hit with a credit rating downgrade from AA to AA- when the Fitch credit rating agency reviewed the situation regarding Portuguese national finances. While Portugal is not the first country to be hit by a credit rating downgrade during these difficult economic times the problem is that many believe the UK debt situation is far worse than Portugal and the UK credit rating could actually be at risk. So is this a real problem?
The very fact that the Standard and Poor's credit rating agency has confirmed that the UK credit rating will be reviewed after the general election has set alarm bells ringing for many people. As we mentioned in one of our earlier reviews of the UK debt situation, a £43 billion interest payment due next year would significantly grow if the credit rating on UK national debt was downgraded in any way. This perfectly reflects the very difficult situation which the UK government will need to navigate through in the short to medium term with the UK still in a very difficult and precarious situation.
Those who believe that the UK credit rating will never be downgraded from the gold-plated AAA could be right but taking this for granted could leave many open to a significant shock in the short term if UK finances worsen further and there is no viable debt repayment program put before the investment markets.
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