Fitch Ratings threatens UK triple-A standing
Agency follows Moody's in changing outlook on top notch rating
By CFOWorld.co.uk | CFO UK | Published 11:20, 15 March 12
Fitch Ratings changed its outlook on the UK's AAA rating to negative on Wednesday, following the lead of fellow ratings agency Moody's.
Fitch said the UK has a greater than one in two chance of losing its top-notch status in the next couple of years.
A downgrade could be triggered by "discretionary fiscal easing that resulted in government debt peaking later and higher than currently forecast", the ratings agency said.
Chief secretary to the Treasury Danny Alexander said this was a "salutary reminder" as to why the UK has to cut its deficit.
"It should be a wake-up call to anyone who thinks we can afford as a country to loosen the purse strings. We can't afford to do that, and that is why there will be no unfunded giveaways in next week's Budget," Alexander said.
The Office for Budget Responsibility forecasts that public sector net debt will peak at 78 percent of GDP by 2014/15 but fall thereafter, and Fitch said that although this was in line with its own forecast for the UK, it was at the limit of the level consistent with a triple-A rating.
The agency said that although risks to the UK from the euro zone debt crisis had diminished, the situation had not been completely resolved and could yet blow up again, endangering the UK's ability to stick to its debt reduction plans.
"The revision of the rating outlook to negative reflects the very limited fiscal space to absorb further adverse economic shocks in light of such elevated debt levels," Fitch said in a statement.
Fitch noted that the Bank of England's £50 billion stimulus and the credibility of the government's fiscal consolidation plans had helped to drive down the cost of borrowing. Moreover, the average maturity of Britain's debt, which at 14 years is twice that of some of its peers, also helps to underpin Britain's triple-A rating.
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