China’s ratings agency downgrades UK to A+
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Dagong Global Credit Rating, China’s leading credit ratings agency, has downgraded the local and foreign currency sovereign rating of the UK, with a negative outlook for its solvency.
The agency cut the rating from AA- to A+. In a statement, it argues that the downgrade reflects the “true status” of the UK’s deteriorating ability to repay its debts and the difficulty of improving its credit rating in the moderately long term future.
On average, Dagong says, economic growth was lower than the average economic growth level of the G7 countries and the world. At the same time, Dagong says, the government deficit reached 9.8% of GDP and the debt burden rose to 78.7% of GDP.
“The international macroeconomic environment is unfavourable for improvement of the economic fundamentals in the UK,” the report says. “No substantial change will be expected in the domestic macroeconomic environment.”
Dagong says the UK’s economic, financial and fiscal reforms are correct, but it is difficult for the economic rebalancing programme to work.
Dagong predicts economic growth for the two coming years to reach only 1.3% and 1.5%, while the deficit will raise beyond the deficit stated in the budget.
“Taking into account all types of key factors affecting the solvency of the central government, Dagong decides to downgrade the sovereign credit rating of the UK to A+,” the report says. “The uncertainty arising from the monetary policy adjustment of the Bank of England and the spill over effect of the European countries…are likely to further worsen the government’s fiscal status.”
At the end of last year, Dagong downgraded the US’s sovereign credit rating to A. It said the downgrade reflected its “deteriorating debt repayment capability and drastic decline of the government’s intention of debt repayment”.
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