S&P cuts EU rating, spares the UK

Global ratings agency Standard & Poor's has cut its long-term rating for EU from AAA to AA+ on concerns about how the bloc's budget was financed.

However, Brussels dismissing the move said, S&P had recently downgraded the Netherlands and in the past years had lowered its view on six other member states, France, Italy, Spain, Malta, Slovenia and Cyprus.

However, the agency reaffirming its credit rating for Ireland said the outlook remained positive. It further reiterated its view that there was more than a one in three probability that it could up its long-term ratings on Ireland in the next 18 months.

S&P has projected growth next year at 1.5 per-  cent slower 2 per cent forecast by the Department of Finance.

According to commentators, that forecast was also out of line with the bullish assessments from the Economic and Social Research Institute (ESRI) earlier this week of 2.7 per cent growth as also  business body IBEC, which forecast 2.8 per cent.

They point out that it showed that some of the international observers were not as confident about growth levels as the domestic analysts and also served to reinforce the inexact nature of the science of forecasting.

Meanwhile, the UK had retained its coveted AAA credit rating, despite a warning that its recovery might not be sustainable.

Chancellor George Osborne was thus able to avoid a humiliating downgrade yesterday from Standard & Poor's, even as the ratings agency kept the UK on 'negative watch', meaning there was a one in three chance of its rating being cut over the next year.

The UK had been stripped of its credit rating by rival agencies Fitch in April (See: Fitch strips UK of AAA status) following a similar downgrade by Moody's earlier in February (See: Moody's strips UK of 'AAA' sovereign rating).

S&P said it had been encouraged by the chancellor's Autumn Statement commitment to eradicate the budget deficit by 2018. The agency also praised 'policyholders' ability and willingness to respond rapidly to economic challenges', adding however that it saw  'risks to the sustainability of any UK recovery based on net lending growth and house price inflation'.

The warning comes even as official figures point to the economy growing faster than earlier thought. According to the latest estimates from the Office for National Statistics (ONS) suggest gross domestic product was up by 1.9 per cent in the year to the end of September, not 1.5 per cent.

The ONS further revealed that the current account deficit – the difference between the UK's earnings from abroad and what it paid out to overseas countries – had soared from £6.2 billion to £20.7 billion.