UK 'has the strength for more bank bailouts'

The backing for Prime Minister Gordon Brown's financial policy came as he is desperately seeking the support of domestic and international bankers to prevent the credit crunch knocking the country into recession.

Chancellor Alistair Darling predicted in last month's Budget that the Treasury would need to borrow an additional £20 billion over the next four years, making today's declaration by Moody's that the UK's "triple A rating is secure" vital to his plans.

But elsewhere indications remain strong that mortgage rates are still rising and house prices falling.

Halifax, the nation's biggest borrower, followed its rival Nationwide in raising interest charges on its two-year fixed rate and tracker mortgages by 0.5% despite last week's 0.25% cut in Bank Rate by the Bank of England.

And top estate agent CB Richard Ellis (CBRE) warned today that a shortage of mortgages will constrain the housing market and could push down prices by as much as 10% this year.

It said the market was "thin and feeble" with prices likely to fall by 4% in 2008. But if credit conditions worsened and fed through to the wider economy the fall could be 10%.

Moody's similarly warned that the UK is the most vulnerable country in Europe if the US recession worsens. It is cautious on rising household debt, and points out that the country's mortgage debt is now more than 100% of households' disposable income.

But on Northern Rock, Moody's has few worries. It said it would stress that the UK's top ratings were not at risk because Northern Rock was "an isolated case and the amount of direct liabilities is modest as compared to the total debt.

"However, the bailout of Northern Rock in the autumn of 2007 and the takeover of its debt by the UK Government confirm the Government's determination to prevent such risk from imperilling the financial system," said analyst Alex Kockerbeck. "Even if more of the banking system's problems became the direct debt of Government we think the UK can provide funding without jeopardising its Aaa rating."

On the broader economy Kockerbeck said: "Declining consumer confidence and a general reassessment of households' income situation are potential risks for the UK economy's medium-term growth potential.

"On the other hand, employment rates remain high thanks to significant labour market reforms and wage moderation."