June 13 (Bloomberg) -- Britain’s top credit rating is more secure at Standard & Poor’s after the company raised its outlook, citing the impact the recovery will have on the government’s finances.
The outlook on the AAA grade was raised to stable from negative, S&P said in a statement today. S&P, which lowered the outlook in 2012, said the revision means there is a less than one-in-three chance of a downgrade over the next two years.
“The outlook revision reflects our view of the robust and broadening recovery in the U.K. economy, and the further progress that the government is making on consolidating public finances,” S&P said.
Britain’s economy expanded 0.8 percent in the first quarter and is projected to be the fastest-growing among the Group of Seven nations this year. S&P forecasts expansion of close to 3 percent this year and 2.5 percent in 2015, driven by business investment and consumer spending.
“Risks to a sustainable economic recovery have diminished,” S&P said. “The financial sector is in a stronger position than it has been for several years, reflecting higher levels of capital, and considerable balance sheet repair since 2009.”
In almost half the instances, yields on government bonds fall when a rating action by Moody’s Investors Service, Fitch Ratings and S&P suggested they should climb, according to data compiled by Bloomberg on 314 upgrades, downgrades and outlook changes going back as far as the 1970s. When S&P downgraded the U.S. government in August 2011, bonds rose and pushed Treasury yields to record lows.
The Office for Budget Responsibility forecasts that the U.K. budget gap will narrow to 5.5 percent of gross domestic product this year. Chancellor of the Exchequer George Osborne, whose Conservative Party will contest a general election in May next year, has warned that five more years of budget cutting is needed to balance the books.
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