Analysts and ratings agencies hold off with judgments on Budget

RATINGS agency Standard & Poors yesterday said it was "too early" to assess the impact of the Budget on Britain's AAA credit rating, writes Jane Bradley

In an interview with Bloomberg Television, Moritz Kraemer, head of sovereign ratings for Europe, Middle East and Africa, said his firm was waiting to check how quickly the coalition government would act on the tough measures laid out in the Budget report earlier this week.

"We've only seen the Budget coming out," said Kraemer.

"This Budget is clearly a very austere Budget. At the end of the day, it's a question of political will. It's a question to what extent the government will be willing to push these things through."

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In May, S&P said the UK had a one-in-three chance of losing the top rating, which it has never lost since the rank was first assigned in 1978.

The nation is rated AAA with a stable outlook at both Moody's Investors Service and Fitch Ratings. Moody's has already said that the Budget was "supportive" of a triple-A rating, while Fitch said it ensured Britain would maintain a AAA grade.

Meanwhile, shadow chancellor Alistair Darling warned at a conference in London that too much was being taking out of the UK economy which would stifle demand, reduce income from tax and keep Britain "bumping along the bottom" for years to come.

"If you take too much money out of the economy where is the demand going to come from? Someone will have to be buying what you produce otherwise there is no growth," he said at Bloomberg's "Understanding the Sovereign Debt Crisis" event.

Sir John Gieve, the former deputy governor of the Bank of England, said the Budget had passed the "deficit test".

"One key test for this Budget was whether the coalition could produce a plan to reduce the deficit which was fast enough to satisfy the markets and yet would be deliverable politically," the banker said.

"It has met the first half; there must be some uncertainty on the second until the spending review is completed in the autumn."

But he warned that the public-sector cuts would be "fierce and prolonged".

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"The asking rate for cuts on most departmental programmes is daunting and goes well beyond efficiency savings," he said. "It will require a fierce and prolonged squeeze on spending even in the favoured areas – the NHS, police, and schools – and some big policy decisions in areas like prison sentences, care for the elderly, the future of the navy and air force, legal aid, transport and university tuition fees."

Deputy prime minister Nick Clegg yesterday defended the coalition government's swingeing cuts package, saying it would have been "morally wrong" not to have slashed spending.

He denied claims that the cuts would hit the poorest hardest and said future budgets would include "very exceptional measures" to ensure fairness was built into the fiscal system.

Clegg was speaking as he and Prime Minister David Cameron launched a consultation exercise, writing to all six million public-sector workers asking for their suggestions as to where the axe should fall.