Rating action on UK budget statement unlikely - DMO

LONDON (Reuters) - Credit rating agencies are unlikely to downgrade Britain's prized triple-A rating after the latest fiscal update by Chancellor George Osborne, the country's chief debt manager said.

In a half-yearly budget announcement to parliament known as the Autumn Statement, Osborne said on Wednesday that sluggish economic growth meant he would be a year late in meeting his target of ensuring that Britain's debt falls as a share of its output.

The delay raised questions about the safety of Britain's credit rating for some economists, but Debt Management Office chief executive Robert Stheeman said the weak growth that had caused the target miss was already well-known.

"Credit rating agencies are unlikely to do something purely because of the Autumn Statement in isolation, which may conceivably have been largely discounted in the market," Stheeman told Reuters.

He added that the market impact of any rating action was likely to be limited, noting the muted market reaction to downgrades to the United States' and France's triple-A ratings in the past 12 months.

Stheeman also played down the likely immediate impact of Osborne's announcement on British government bonds.

"I do not believe that the fiscal news which was announced as part of the Autumn Statement is in isolation going to have a significant impact on gilt yields in the UK."

Gilts showed little reaction while Osborne was speaking, springing into action only when the DMO announced a smaller- than-expected cut in gilt issuance this fiscal year.

The benchmark futures contract fell sharply after the agency said gilt sales in 2012-13 would be cut to 164.2 billion pounds from its previous remit of 164.4 billion, compared to analysts' forecasts for 158.2 billion pounds.

In a surprise to many investors, the DMO said that almost all of a roughly 15 billion pound reduction in Britain's funding needs would be achieved through lower Treasury bill sales, leaving gilt issuance relatively intact.

(Editing by Toby Chopra and Susan Fenton)

Source: http://news.yahoo.com/rating-action-uk-budget-statement-unlikely-dmo-180150777--sector.html

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