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After France, The UK Downgrade Could Come In Early December - Morgan Stanley

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Quote of the day:

"The UK’s fiscal position and the risk of a ratings downgrade remain a concern that could come to a head with Chancellor Osborne’s December 5 autumn budget statement. The budget continues to overshoot the government's fiscal consolidation targets, with the deficit and debt for 2012 likely to reach 7% and 97% of GDP, respectively, in the new OBR projections to be published on December 5 alongside Chancellor Osborne's autumn budget statement. However, he will most likely need to either make a mid-course correction – implementing more austerity to get the budget and debt back on track – or to accept an overshoot driven by weaker than expected global and UK economic activity...These outcomes could affect the GBP market value through one of three channels: Renewed austerity could drive real interest rates deeper into negative territory and compel the MPC to implement more aggressive unconventional policy easing. Second, accepting an overshoot could undermine confidence in the government. And, third, the likelihood of a sovereign downgrade would rise."

Gabriel de Kock, executive director, head of US FX strategy - Morgan Stanley

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