LONDON, Sept 30 (Reuters) – Ratings agency Standard & Poor’s on Friday downgraded its AA credit rating outlook for Britain’s sovereign debt to “negative” from “stable” as it believed plans to cut Prime Minister Liz Truss’ taxes would keep the debt on the rise.

Finance Minister Kwasi Kwarteng on September 23 announced around 45 billion pounds ($50 billion) in permanent, unfunded tax cuts, as well as costly temporary subsidies to household and business energy bills , sending the pound and bond markets into a tailspin.

As the pound has since rallied, the Bank of England was forced to launch an emergency bond-buying program on Wednesday to stabilize markets and warned it was likely to raise interest rates significantly. interest in November.

S&P – which rates UK government debt a notch above rivals Moody’s and Fitch – said it sees UK government debt on an upward trajectory, contrary to a previous forecast that it would decline as a percentage of gross domestic product from 2023.

“Our updated budget forecast is subject to additional risks, for example, if UK economic growth proves weaker due to further deterioration in the economic environment, or if government borrowing costs are rising more than expected, driven by market forces and monetary policy tightening,” he added.

S&P forecasts that Britain will enter a technical recession in the coming quarters and that its GDP will shrink by 0.5% in 2023.

Truss and Kwarteng met senior officials from Britain’s Office for Budget Responsibility on Friday, but have so far rejected calls from some investors and political rivals for the independent OBR to issue new forecasts by November 23, when Kwarteng intends to draw up a debt reduction plan.

Moody’s said Wednesday that Kwarteng’s tax cuts were “credit negative” and flagged Oct. 21 as the next most likely date for a more formal review.

The UK government said tax cuts and longer-term structural reforms in areas such as immigration and planning permission should boost growth, but S&P said the benefits were likely to be modest, in especially in the short term.

“At this time, it is unclear whether the government plans to eventually introduce fiscal consolidation measures to bring debt back on a downward path and we assume the package will be debt-financed,” he said. he declared.

UK government borrowing is expected to average 5.5% of GDP per year from 2023 to 2025, down from a previous forecast of 3%, while general government debt will reach 97% of GDP by 2025, according to S&P forecasts. .

($1 = 0.8961 pounds)

Reporting by David Milliken; Editing by Leslie Adler, Daniel Wallis and David Gregorio

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