US likely to suffer second downgrade – Merrill

The US is set to see another ratings agency strip it of its AAA-credit rating by the end of the year, Bank of America Merrill Lynch has predicted.

Merrill said the move is likely to come by the end of 2011, as agencies remain concerned about the nation’s budget deficit, Reuters reports.

The trigger would be a likely failure by Congress to agree on a credible long-term plan to cut the deficit, the bank said in a research note published on Friday.

A second downgrade - either from Moody's or Fitch - would follow Standard & Poor's downgrade in August on concerns about the government's budget deficit and rising debt burden.

A fresh loss of the country's top credit rating would be an additional blow to the sluggish US economy, Merrill said.

"The credit rating agencies have strongly suggested further rating cuts are likely if Congress does not come up with a credible long-run plan" to cut the deficit, said the report's author, Merrill's North American economist, Ethan Harris.

"Hence, we expect at least one credit downgrade in late November or early December when the super committee crashes," he added.

The bipartisan congressional committee formed to address the deficit - known as the "super committee" - needs to break an impasse between Republicans and Democrats in order to reach a deal to reduce the US deficit by at least $1.2trn by 23 November.

If a majority of the 12-member committee fails to agree on a plan, $1.2trn in automatic spending cuts will be triggered, beginning in 2013, Reuters reports.