UK to lose AAA rating as Debt/GDP ratio rises to 85% and borrowing overshoots by £37 billion

New Cebr forecasts show continued sluggish economic growth in 2013 at 0.5% with slow growth likely to be the ‘new normal’ as the UK struggles to get to grips with the changing world economy. Meanwhile the UK is likely to lose its AAA rating as the Debt/GDP ratio rises to 85% on the ONS definition in 2017/18. The deficit in that year is forecast to be £68 billion – more than double the £31 billion forecast by the OBR.

 

Export growth will be constrained by recession in the Eurozone which accounts for 45% of UK goods exports, holding back the prospect of a significant trade-led recovery this year.

 

Weak earnings growth and the uprating of most benefits by just 1.0% over the next three years will hold back the prospects for household consumption to drive growth going forward. Government spending cuts and business reluctance to invest in a floundering economy also mean that economic activity is likely to remain heavily subdued in the medium-term.

 

Scott Corfe, Cebr Senior Economist, said, “Weak economic growth will hold back the deficit reduction programme over the coming years. In addition, there seems to have been a setback in reducing public spending – despite alleged austerity,  we expect government consumption to have grown by 2.8% in real terms in 2012 – the fastest pace of growth since 2004. The combination of these two things means that the deficit reduction programme will stretch into not just the next Parliament but into the one after that.”

 

Douglas McWilliams, Chief Economist at Cebr and a contributor to the report said, “It will be almost impossible for the UK to maintain its AAA rating in the light of this forecast. The Debt/GDP ratio is only forecast to stabilise in 2017/18 and start edging down thereafter.”

 

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