Worried about the health of British banks, ratings company Egan-Jones slashed its credit rating on the United Kingdom on Monday as European governments continue to be pressured by the sovereign debt crisis.
Egan-Jones, a relatively small credit rater, cut the U.K. to “AA-" from “AA” and left a “negative” outlook on the country.
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“The overriding concern is whether the country will be able to continue to cut its deficit in the face of weaker economic conditions and a possible deterioration in the country’s financial sector,” the report said.
Egan-Jones noted the large scale of the U.K. banking system, which could leave taxpayers on the hook for future bailouts. The top five British banks have assets equal to 477% of the country’s gross domestic product, compared with 125% for Germany, the report said.
"The major problem for the U.K. is that Europe's banking crisis does not appear to be abating as evidenced by the miserable results of most [eurozone] banks," the ratings company said.
The move comes as the eurozone debt mess intensified last week amid growing concern that Greece could exit the common currency and Spain’s banking system could collapse.
Egan-Jones forecasted the U.K.'s debt-to-GDP ratio will rise to 103.9% this year, 110.1% next year and 116.3% in 2014. After rising 0.7% in 2011, GDP is forecasted to slump 1.5% this year and next.
"Unfortunately, we expect that the U.K.'s debt/GDP will continue to rise and the country will remain pressed," Egan-Jones wrote.
Last week Egan-Jones downgraded both Italy and Spain, two nations that have seen their bond yields soar amid the rising eurozone fear.
Egan-Jones has been more aggressive than some of its peers like Moody’s (NYSE:MCO) in downgrading sovereign credit ratings, including that of the U.S.
Earlier this year the Securities and Exchange Commission issued false statements and conflict-of-interest charges against Egan-Jones, charges the ratings company has denied.