LONDON: Investor perceptions of British creditworthiness are improving faster than almost every country in Europe as the economic recovery strengthens.

Credit-default swaps insuring $10 million of gilts for five years dropped to a more than five-year low of $24,673 a year from $52,485 in June, according to data compiled by Bloomberg. The swaps have declined 42 percent in the past six months, close to the 43 percent drop for Spain, and beating a 39 percent decrease for Italy and 36 percent for the Netherlands.

Britain's economy will expand 2.4 percent this year, more than twice as much as the euro area, according to Bloomberg surveys of economists last month. Chancellor of the Exchequer George Osborne upgraded Britain's growth and fiscal forecasts in December as Standard & Poor's affirmed the nation's AAA rating, while stripping the European Union of its top grade.

"There's been a dramatic turnaround in UK growth expectations and with it projections for reduced government deficit," said Matt King, global head of credit strategy at Citigroup Inc. in London.

Swaps fell in five of the past six months, reaching the lowest level since September 2008 on Nov. 26. They were trading at 28 basis points on Dec. 31. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

Rising house prices and disposable income are spurring Britain's recovery. Gross domestic product increased 0.8 percent in both the second and third quarters, with consumer spending adding 0.2 percentage point in the second quarter and 0.5 percentage point in the third.

The Bank of England has taken steps to directly boost lending to companies and households with its Funding for Lending Scheme, which gives incentives to banks and building societies to expand credit via residential mortgages and business loans in exchange for cheap financing. While the European Central Bank cut its benchmark rate to a record low last year, policymakers have stopped short of introducing direct lending programs.

Twenty-one FLS participants drew down a net 5.5 billion pounds ($9.1 billion) from the program in the third quarter, taking aggregate outstanding drawings to 23.1 billion pounds, according to BOE data published on Dec. 2.

The Royal Institution of Chartered Surveyors forecasts an 8 percent increase in home values next year. The amount of money available to households for spending rose for a second quarter in the three months through September, the Office for National Statistics said on Dec. 20.

Data last month also showed inflation unexpectedly slowed in November to the least in four years, while unemployment dropped to 7.4 percent in the quarter through October, the lowest in 4 1/2 years. Consumer prices rose 2.1 percent from a year earlier compared with a median forecast of 2.2 percent, according to a Bloomberg News survey by 36 economists.

"The numbers are very impressive," said Yannick Naud, a London-based money manager at Glendevon King Ltd., which oversees $200 million of mostly fixed-income assets.

The $2.4 trillion economy will surpass France as the world's fifth-largest economy within five years and is on course to overtake Germany's $3.4 trillion economy to become the largest in Europe by 2030, the Centre for Economics and Business Research said in a report on Dec. 26.

S&P cited the government's commitment to reducing its deficit, its fiscal flexibility, faster growth and lower borrowing requirements in its decision, noting the country's net general debt will peak sooner and lower than it had forecast because of a strengthening economy. Moody's Investors Service and Fitch Ratings both grade the country's bonds one step lower. At the same time, S&P stripped the European Union of its top rating, saying the bloc's cohesion has weakened and its financial profile deteriorated.

"The economy is recovering, albeit largely on the back of private consumption and residential investment," S&P wrote in its report. "The outlook remains negative, reflecting our view of risks to the sustainability of growth."

Though Citigroup's UK Economic Surprise Index rose to 113.3 on Aug. 19, the highest since November 2012, it has since dropped to 7.4. The gauge measures whether data has been above or below economists forecasts, with a positive reading indicating that data releases have been stronger than expected.

Knight Frank LLP said in a report last month that price increases in London's luxury-home market will slow to 4 percent in 2014 from 7.5 percent last year as buyers shun neighborhoods such as Chelsea and Knightsbridge that fueled a five-year boom.

"For now, it all looks great, but we have a worry in the UK and everywhere that if you have growth, it's because of credit growth," Citigroup's King said. "It might be creating problems in the long term."

While the government and Bank of England have raised their growth forecasts, the proportion of incomes saved declined and the current-account deficit reached the most since 1989 as a percentage of GDP in the third quarter.

The savings ratio slipped to 5.4 percent in the third quarter of 2013 from 6.2 percent and the current-account deficit widened to 20.7 billion pounds from 6.2 billion pounds in the previous three months. As a percentage of GDP, the current- account deficit reached 5.1 percent.

The Office for Budget Responsibility cut its 2013-14 net borrowing forecast to 111 billion pounds, or 6.8 percent of GDP, from its March prediction of 120 billion pounds. It sees the budget returning to surplus in 2018-19.

"The government budget deficit is still very high, but all in all, the government is focused on cutting expenses instead of raising taxes," Naud said. "What the U.K. did has proven to be a better medicine."