Markets slide after UK credit warning

The FTSE 100 Index dived 2.8 per cent yesterday after credit rating agency Standard & Poor's changed the outlook on UK debt from 'stable' to 'negative'. The downgrade was the first such move since it started its analysis over 30 years ago and came amid rising concerns over the level of government debt.Borrowing jumped to a record £8.5bn in April, mainly as a result of the drop in tax receipts, as the economic slowdown cut into corporate income. Income tax and VAT income were both about £2bn lower in April than in the same month last year, while the cost of the banking bail-out has also contributed to the deterioration.Although there was widespread relief that S&P did not downgrade the UK's top credit rating it said there was an increasing risk that it would so if the country's borrowing continues to spiral. It pointed out that UK debt could reach 100 per cent of gross domestic product by 2013, a level not deserving of its top AA rating. Liberal Democrat Treasury spokesman Vince Cable said the government should "come clean about how it intends to pay back its debt" or risk "a further deterioration in Britain's rating".After the share falls in the UK, other markets slid on concerns they could be next. The Dow Jones Index in the US fell 1.5 per cent, Germany's Dax plunged 2.7 per cent and the mood in Asia soured too with declines in Japan and China.WHAT THEY ARE SAYING:Robert Peston, BBC: First things first. No reason to panic. There may have been a bit of weakness in sterling and UK government bonds or gilts this morning. But nothing cataclysmic. And, strikingly, the Debt Management Office has this morning completed the biggest ever auction of gilts in history. And it sold the lot very comfortably indeed, with far more bids than it needed. So we ain't bust yet.Chris Giles and Jean Eaglesham, Financial Times: At the end of a week in which Gordon Brown has been pushed on to the ropes over the parliamentary sleaze row, Thursday’s intervention by Standard & Poor's, the ratings agency, may have been the most wounding blow of all. To a man who forged his reputation for so many years on his seemingly astute handling of the British economy, its decision to shift the outlook for the UK from stable to negative may have proved at least as distressing as the revelations about expenses claims that have dragged politics into the mire.
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