Britain's AAA rating 'safe for now'

An acceptance by all Britain's main political parties of the need to repair the public finances means the country's triple-A rating is safe for now, Moody's senior vice president Kristin Lindow told Reuters.

Even if Britain's upcoming election produces a "hung parliament" where no party has an overall majority, the country could still cling on to its top-notch status.

"We suspect strongly that any government elected - even a hung parliament - would be ready to make adjustments to reduce the deficit," Lindow said on Friday.

"That's behind our stable outlook, despite the extreme deterioration on the fiscal front."

Moody's stance contrasts with that of rival agency Standard & Poor's which downgraded Britain's rating outlook to negative last May, citing the risk that government debt could soar close to 100 per cent of gross domestic product.

After a decade of preaching prudence as finance minister, Prime Minister Gordon Brown has had to sanction government borrowing rising to record levels as Britain's economy plunged into its worst recession since World War II.

Brown has promised to halve the deficit - running at more than 12 per cent of GDP - by 2014, if re-elected, while faster and deeper cuts have been pledged by the Conservatives, who have a narrow lead in opinion polls.

Recovery worries

Moody's acknowledged that the "distance-to-downgrade" for all the large triple-A rated sovereigns had shortened over the past three months, and a fragile recovery could hamper the government's tax-raising potential.

But it said the top-notch ratings of Britain and the United States, whose debt affordability is currently the most stretched, were supported by substantial "debt reversibility" - the ability to repair the balance sheet.

Moody's played down the importance of the government's Budget due on March 24, noting it was hard to extrapolate election talk from post-election action.

"The upcoming budget is not going to be the final word. It will be the budget after the election that is important," said Lindow.

She declined to spell out exactly how much fiscal tightening she was expecting in Britain but said it would not need to be as extreme as that recently undertaken by Greece.

"The UK is still a long way away from anything that would prompt a ratings outlook change," she said. "We are making the assumption that action to cut the deficit will be taken by whichever party wins the election. It's a bold assumption, but we would be very surprised if that is not the case."

- Reuters