Britain's top rating may yet survive

Rating agency Moody's imposed a negative outlook on Britain's triple-A rating late on Monday -- the first such warning on London's debt since theeuro zone crisis -- saying the country's finances were too weak to cope with another big shock.

The stakes for Prime Minister David Cameron are high. Costly bank bailouts and runaway public spending rises under his predecessor Gordon Brown have saddled Britain with one of the developed world's highest budget deficits.

A downgrade of British debt could spook investors and make it much harder for London to raise the tens of billions of pounds of funding it needs to get through the next few years.

Economists and analysts still believe on balance, however, that Britain will get through the crisis without a downgrade. A Reuters snap poll of 10 economists taken after Moody's announcement gave only a median 27.5 percent chance that Britain would lose its triple-A standing.

Moody's issues a negative outlook if there is a one in three chance of a downgrade.

The warning, however, will hurt the coalition government's economic record and fuel a debate here over whether a different policy mix to bring the economy back on track would yield better results.

While a downgrade would deal a major blow to Chancellor George Osborne, who has vowed to erase the budget deficit within five years, some economists doubt it would significantly drive up borrowing costs.

"We do not expect the UK to be downgraded, but believe such an event would still not affect the draw of the gilt market," said Nomura economist Philip Rush.

The fact that Britain had a very strong track record as a debtor, the institutions to raise the money to service its debt and an independent Bank of England should protect the rating. "Credibility is everything," Rush said.