ft.com/alphaville

Oh boy, is Gordon Brown in trouble.

The parliamentary expenses scandal in Britain may have distracted the public’s gaze from the dire state of the local economy, but rating agency Standard & Poor’s has now guaranteed its return to the front pages.

Thursday’s  bullet points:
S&P revises United Kingdom outlook to neg; rtgs affirmed May 21

– Standard & Poor’s has revised the outlook on the United Kingdom to negative from stable.
– The ‘AAA’ long-term and ‘A-1+’ short-term sovereign credit ratings were affirmed.
– The outlook revision is based on our view that, even factoring in further fiscal tightening, the U.K.’s net general government debt burden may approach 100% of GDP and remain near that level in the medium term.

This was the reaction in the currency markets:

The message from S&P is loud and clear: government debt in the UK is set to double by 2013 and that is not compatible with a AAA rating.
We note that there is support across the political spectrum for additional fiscal tightening. However, the parties’ intentions will likely remain unclear until the next administration is formed after the general election, due by mid-2010. How quickly the government can stabilize and then reduce the government debt burden will also depend on the timing and shape of the economic recovery and whether the cost of government support of the banking system is higher than we currently assume, areas where we also see continued downside risks.     The negative outlook reflects Standard & Poor’s view that, in light of the challenges to strengthen the tax base and contain public expenditures, the U.K. government debt burden could approach 100% of GDP by 2013 and remain near that level thereafter.And here’s the sting - S&P’ are saying “cut spending, or else.” Credit analyst David Beers:
The rating could be lowered if we conclude that, following the election, the next government’s fiscal consolidation plans are unlikely to put the U.K. debt burden on a secure downward trajectory over the medium term… Conversely, the outlook could be revised back to stable if comprehensive measures are implemented to place the public finances on a sustainable footing, or if fiscal outturns are more benign than we currently anticipate.