The sovereign downgrade monster is back on the rampage. Earlier today, S&P fired a blank shell straight at the heart of the usurper formerly known as the developed world, when it put UK's credit outlook on negative. The premise: debt/GDP will soon pass 100%. In that case the US should be afraid, very afraid with some estimates for the comparable ratio in the United Printing Presses of America at over 370% (including the kitchen sink).
- Standard & Poor's has revised the outlook on the United Kingdom to negative from stable.
- The 'AAA' long-term and 'A-1+' short-term sovereign credit ratings were affirmed.
- The outlook revision is based on our view that, even factoring in further fiscal tightening, the U.K.'s net general government debt burden may approach 100% of GDP and remain near that level in the medium term.
The negative outlook reflects Standard & Poor's view that, in light of the challenges to strengthen the tax base and contain public expenditures, the U.K. government debt burden could approach 100% of GDP by 2013 and remain near that level thereafter. The rating could be lowered if we conclude that, following the election, the next government's fiscal consolidation plans are unlikely to put the U.K. debt burden on a secure downward trajectory over the medium term. Conversely, the outlook could be revised back to stable if comprehensive measures are implemented to place the public finances on a sustainable footing, or if fiscal outturns are more benign than we currently anticipate.
First Japan, now the U.K., the pattern is pretty obvious. Load up on U.S. CDS at 38 bps anyone?