US will lose AAA credit rating, says M&G's Jim Leaviss
A leading fund manager has warned that the world's largest economy will be downgraded within two years because of its high levels of debt.
By Philip Aldrick 6:11AM GMT 15 Dec 2010
Jim Leaviss, head of retail fixed interest at M&G, the fund management arm of the Prudential, said France remains "the AAA economy closest to a downgrade" and that the US "will lose its AAA rating – but not in 2011" as the two countries grapple with debt.
Although the UK is under pressure, he believes, he did not state whether it would also lose its rating.
His concern is that "economic growth will not make the inroads ... that the central banks want to see". However, he does not believe there will be a double-dip recession in any of the three countries. "These economies will continue a period of expansion that is sub-trend," he said.
The UK, he predicts, will see "a renewed bout of quantitative easing" even though "inflation will remain above target at a headline level".
"We believe that central bank thinking in the UK and Europe has moved away from pure inflation-targeting to more of a 'dual-mandate', like the Federal Reserve, of full-employment and price stability," he explained .
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"Central banks and governments are throwing everything they have in their monetary and fiscal policy weaponry to generate a self-sustaining economic recovery."
The Bank of England has stressed that it has not abandoned its 2pc inflation target, even though inflation currently stands at 3.3pc.
He expects corporate bonds to "continue to outperform their heavily indebted government counterparts".
Meanwhile, the Dow Jones Industrial Average rose to its highest level since before Lehman Brothers bankruptcy in September 2008 as the Fed kept its plan to buy $600bn of Treasuries through June in a second round of quantitative easing. The index closed up 47.98 - 0.42pc - at 11,476.54.
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Wednesday, December 15th 2010 at 5:13PM
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