Sterling falls over finance warning
Updated on 21 May 2009
Sterling fell sharply after a leading ratings agency issued a stark warning about the state of the UK's public finances.
S&P revised its outlook on the UK to negative from stable, although at the same time it maintained its "AAA" long-term sovereign credit rating.
The agency said the revision was based on its view that the UK's debt burden may approach 100% of GDP and remain near that level in the medium term.
Sterling, which has enjoyed a recovery in recent weeks, slipped more than 1% against the dollar and euro.
The revision by S&P emerged at the same time as official figures showed borrowing hit £8.5 billion in April.
The steeper than expected rise in public sector net borrowing is a record for the month and more than four times higher than the £1.8 billion seen 12 months earlier, the Office for National Statistics (ONS) said.
It comes as recession bears down on Government tax revenues, while rising unemployment forces up benefit payments.
Chancellor Alistair Darling last month predicted net borrowing over the financial year as a whole would reach an all-time high of £175 billion.
Standard & Poor's warned that Government debt approaching 100% of GDP would be "incompatible" with an AAA rating.
It said: "We believe that the ratings on the UK continue to be supported by its wealthy, diversified economy; a high degree of fiscal and monetary policy flexibility; and its relatively flexible product and labour markets."
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