U.K. Should Lose Top AAA Rating as Growth Ebbs, Danske Bank Says

The U.K. should lose its top AAA credit rating and be cut by four notches to A+, the same as Standard & Poor’s rates Italy and Slovakia, as the economy slows and government debt levels rise more than expected, according to Danske Bank A/S.

“A downgrade of the U.K. could in our view happen in 2012 and we believe it can remain a market theme into 2013,” Danske Bank analysts John Hydeskov and Hugo Railing said in a report dated yesterday. “It would of course create a lot of public furor and cause U.K. politicians to criticize rating agencies, but it would not lead to a huge gilt sell-off and we believe there would still be plenty of demand for British debt.”

S&P, Moody’s Investors Service and Fitch Ratings have all assigned the U.K. the top grade with stable outlooks, indicating a change soon isn’t likely. The Office for Budget Responsibility, which oversees U.K. Treasury forecasts, sees government debt as a percentage of gross domestic product peaking at 71 percent in the fiscal year 2013-2014, before easing in the coming years.

“We disagree with the OBR’s underlying assumptions about the debt-burden projection,” Hydeskov and Railing wrote in the e-mailed report. “Real growth could in our view be substantially lower” and “the U.K. debt burden will rise in the years to come because of the still-sizable public deficit.”

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net