US loses top-tier AAA credit rating from Standard & Poor’s in unprecedented blow

The United States lost its top-tier AAA credit rating from Standard & Poor's on Friday in an unprecedented blow to the world's largest economy in the wake of a political battle that took the country to the brink of default.

Standard & Poor's cut the rating to AA+ with a negative outlook, saying US politicians were increasingly unable to come to grips with the country's huge fiscal deficit and debt load. The action is likely to eventually raise borrowing costs for the American government, companies and consumers.

"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics," S&P said in a statement.

The outlook on the new US credit rating is "negative," S&P said, indicating another downgrade was possible in the next 12 to 18 months.

The move reflects the deterioration in the global economic standing of the United States, which has had an AAA credit rating from S&P since 1941, and it could have implications for the US dollar's reserve currency status.

The decision follows a fierce political battle in Congress over cutting spending and raising taxes to reduce the government's debt burden and allow its statutory borrowing limit to be raised.

Analysts said that world equities, fresh from their worst week since the 2008 global financial crisis on euro zone debt fears, would face more turmoil after Washington lost its AAA rating. "The news that S&P finally pulled the trigger... will surely rock the financial markets when they open on Monday," said Capital Economics analyst Paul Dales. "If the market mayhem continues, the risks of a recession will rise further," he warned.