LONDON, Sept 30 (Reuters) - Ratings agency Standard &
Poor's cut the outlook for its AA credit rating for British
sovereign debt on Friday to "negative" from "stable" as it
judged Prime Minister Liz Truss's tax cut plans would cause debt
to keep rising.
Finance minister Kwasi Kwarteng announced around 45 billion
pounds ($50 billion) of permanent, unfunded tax cuts on Sept. 23
as well as costly temporary subsidies to household and business
energy bills, sending sterling and bond markets into a tailspin.
While sterling has since recovered, the Bank of England was
forced to launch an emergency bond purchase programme on
Wednesday to stabilise markets and has warned it would probably
need to raise interest rates significantly in November.
S&P - which ranks British government debt one notch higher
than rivals Moody's and Fitch - said it saw British public debt
on an upward trajectory, in contrast to a previous forecast that
it would fall as a share of gross domestic product from 2023.
"Our updated fiscal forecast is subject to additional risks,
for instance, if the UK's economic growth turns out weaker due
to further deterioration of the economic environment, or if the
government's borrowing costs increase more than expected, driven
by market forces and monetary policy tightening," it added.
S&P forecast Britain would enter a technical recession in
the coming quarters and its GDP would shrink by 0.5% in 2023.
Truss and Kwarteng met top officials from Britain's Office
for Budget Responsibility on Friday, but have so far rejected
calls from some investors and political rivals that they ask the
independent OBR to publish new forecasts sooner than Nov. 23,
when Kwarteng intends to set out a debt-reduction plan.
Moody's said on Wednesday that Kwarteng's tax cuts were
has flagged Oct. 21
as the most likely next date for a more formal review.
Britain's government has said that tax cuts and
longer-term structural reforms to areas such as immigration and
planning permits should boost growth, but S&P said the benefit
was likely to be modest, especially in the short term.
"For now it is unclear whether the government plans to
ultimately introduce fiscal consolidation measures to bring debt
back on a downward path and we assume that the package will be
funded by debt," it said.
Britain's public borrowing was likely to average 5.5% of
GDP a year from 2023 to 2025, compared with a previous forecast
of 3%, while general government debt would rise to 97% of GDP by
2025, S&P forecast.
($1 = 0.8961 pounds)
(Reporting by David Milliken; Editing by Leslie Adler, Daniel
Wallis and David Gregorio)