Moody's says UK's credit rating is supported by Budget

Credit ratings agency Moody's said the swingeing cuts announced by chancellor George Osborne will help the UK keep its prized AAA rating but well-respected bond investor Jim Leaviss said the risks of falling back into recession have increased.

Moody's Investors Service today said the UK budget is supportive of the country's AAA rating and the outlook is stable because it is a key step in reversing the surge in government debt over the last two years.

Moody's vice president Kenneth Orchard said: 'The Budget confirmed the UK government's intention to eliminate the structural current deficit by 2015/16. Successful implementation would return the government's finances to a more sustainable trend.'

He said plans to bring net debt down to around 70% of GDP in 2013/14 - a lower level than the rating agency had initially envisaged - would likely mean debt affordability would remain consistent with an AAA rating.

Moody's echoed similarly upbeat comments from credit ratings agency Fitch yesterday afternoon.

David Riley, head of sovereign ratings at Fitch said yesterday: 'Today's Budget sets out an ambitious deficit reduction path that, if delivered upon, will materially strengthen confidence in UK public finances and its AAA status.'

But he said securing the sending reductions will be very challenging and the Spending Review, later in the year, will be important in detailing and enhancing the credibility of the Budget announcements.

M&G bond investor Jim Leaviss also expressed concern, saying that while the swingeing cuts were necessary to satisfy ratings agencies in the short term the scale of the contraction in state spending was unprecedented in living memory and could jeopardise the UK’s fragile economic recovery.

‘The strict cuts are necessary for the good of the UK economy but will put added pressure on peoples’ spending and growth,’ he said.

Given the high levels of austerity, there is certainly a risk of lower levels of growth compared to other areas of the world and a double dip recession is not out of the question.

That echoed recent comments from former MPC member David Blanchflower who said there is a risk that Britain could be plunged into its own Great Depression.

'My worry is that Osborne will put us in a double dip and it risks a great depression,' he said.

Over the last three years Leaviss has returned 42.6% versus an average manager’s return of 40.9%.