Britain's top-notch credit rating is expected to survive the threat of a downgrade because of the government's resolve to erase a huge budget deficit and the central bank's ability to print money.

Together these are seen keeping the country credible with investors even though it faces large risks to growth.

Rating agency Moody's slapped a negative outlook on Britain's triple-A rating late on Monday, saying the neighbouring euro zone crisis is intertwinned the country's fortunes and its economy and finances are too weak to cope with a major shock.

Economists and analysts said on Tuesday, however, that Britain was strong enough to get through without a downgrade. A Reuters snap poll of 10 economists taken after Moody's announcement gave only a median 27.5 percent chance that Britain would lose its triple-A standing.

Moody's issues a negative outlook if there is a one in three chance of a downgrade.

The warning, however, will stain the coalition government's economic record and a fuel the ongoing debate over whether a different policy mix to bring the economy back on the recovery track.

But while a downgrade would come as a major blow to Chancellor George Osborne, who has vowed to erase the budget deficit within five years, many economists doubt that it would significantly drive up borrowing costs for the country.

We do not expect the UK to be downgraded, but believe such an event would still not affect the draw of the gilt market, said Nomura economist Philip Rush.

Britain's recovery from the steep slump in 2008/2009 has been weak. Unemployment -- already at a 17-year high -- is set to rise further, and Bank of England governor Mervyn King has warned the way back to growth would be long and arduous.

But still, Britain is enjoying near record-low borrowing costs as investors view its bonds as a relative safe haven in the global debt storm despite a deficit worse than that of France, which saw its AAA-rating stripped by Standard & Poor's at the end of last year.

Britain, which has already had to give up on balancing the books by the time of the next election in 2015, is aiming for a budget deficit of 8.4 percent of national economic output in the 2011/12 fiscal year, falling to 7.6 percent in 2012/13.

In contrast, France is hoping to run a budget deficit of about 4.5 percent of national economic output this year, while the United States is seen posting a deficit of 6.2 percent.

SAFE HAVEN

There are several crucial factors why Britain is seen as safer than most. The average maturity of its debt -- which dictates when the government has to reimburse investors -- is 14 years, much longer than many nations, according to the Debt Management Office, giving it a lot of breathing space.

And the central bank has just embarked on another 50 billion pounds round of quantitative easing purchases. The Bank of England is still there as the buyer of last resort and it is still buying more gilts than the DMO is issuing, said Monument Securities strategist Marc Ostwald.

Moody's itself noted the Bank of England's key role in safeguarding investors' trust as well as the limited risk of not finding buyers for its debt.

The UK has the lowest refinancing risk of all the large AAA economies, based on the average maturity of the UK's debt stock, ... its large domestic investor base, and the willingness and ability of its central bank to undertake accommodative monetary policy, Moody's said.

Politically, nonetheless, the loss of the top-rating would be a big blow for a government that has pinned its fortunes on reviving Britain's economy by rapidly reducing a record budget deficit and safeguarding its top-notch credit rating.

Both of those goals now look to be in danger.

Chancellor Osborne, committed to slashing spending by about a fifth across government departments before the next election in 2015, faces the increasingly tough task of pushing through cuts while steering Britain away from a slump.

Treasury sources indicate that the credit rating must be protected at all costs, a sign that Osborne could even pledge to make further cuts if needed to keep financial markets on side.

The government will stick to its plan to meet its fiscal mandate, one source said.

But sources say there are also senior Treasury officials who worry that the rating is at risk and that the government will struggle to deliver its cuts agenda, given its ambition, because of the danger of a prolonged economic stagnation. Officials also worry critics will now be able to label the coalition's economic policy a failure and that voters could respond.

The Labour party, in desperate need of a boost to stand a real chance of election victory in 2015, seized on Moody's move to accuse the Conservatives of putting the economy at risk. My policy has been consistently not to say you should set your economic policy by what the credit ratings agencies say, said Labour's finance spokesman - and former cabinet minister - Ed Balls.

(Additional reporting by Sudip Kar-Gupta. Editing by Jeremy Gaunt)

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