In his autumn statement to Parliament on Wednesday, Britain’s chancellor of the exchequer, George Osborne, announced that growth will be slower and borrowing higher than previously forecast.
Even if he insisted that the United Kingdom is “heading in the right direction,” the government missing its deficit and debt targets has some worried that the country may be in danger of losing its credit rating.
Osborne admitted that it will take two more years to close the deficit.
The national debt as a percentage of gross domestic product won’t start falling until the 2016-17 fiscal year.
Fitch, one of the three major credit rating agencies, said Britain’s credibility has been damaged. It plans to review its appraisal of Britain’s creditworthiness early next year.
A downgrade would take Britain out of a small group of European countries that has been able to maintain top ratings.
The damage may be more psychological.
Standard and Poor’s downgrade of America’s creditworthiness last year had no discernible effect. Borrowing rates even fell as investors grew more anxious about the sovereign debt crises in the eurozone.
But a downgrade would certainly harm Osborne’s reputation. In the last general election, his Conservative Party promised to keep the country’s top rating intact.