Fitch keeps Britain's top 'AAA' rating

14th March 2011, Comments 0 comments

Fitch Ratings announced Monday that it has maintained the UK's top-level 'AAA' assessment, and praised British prime minister David Cameron for his swift action in slashing the deficit.

"The legacy of the global financial crisis continues to weigh on the UK economic and fiscal outlook," said Maria Malas-Mroueh, director in Fitch's sovereign team, in a statement.

"Nonetheless, the strong budgetary consolidation effort and declining fiscal risks arising from the UK financial sector support the stable outlook on the UK's 'AAA' ratings."

The decision also reflected a raft of other factors, including the strength of the UK economy and the bond market.

"The affirmation reflects that the UK's 'AAA' ratings remain underpinned by its high value-added, wealthy and flexible economy; strong financial flexibility underpinned by a deep government bond market and the British pound's continuing status as a 'reserve currency', as well as political and social stability," the agency added.

Cameron's Conservative-Liberal Democrat coalition, which rose to power in May 2010, has sought to slash public spending and hike taxes in order to bring down a record deficit that was inherited from the previous Labour administration.

The UK's public deficit ballooned on the back of enormously expensive bank bailouts at the height of the global financial crisis, while a record-length recession reduced taxation revenues. The recession ended in late 2009.

"The risk to the UK's 'AAA' status arising from its large structural budget deficit and rapidly rising public debt burden has been mitigated by a strong and credible fiscal consolidation programme," added Fitch on Monday.

However, the agency also warned that the main risk to the UK's top-level assessment arose from the threat of a weaker-than-expected economic recovery.

"The principal risk to the UK's 'AAA' status is if a much weaker than anticipated economic recovery undermined the fiscal consolidation effort and gave rise to a deterioration in bank asset quality and an increase in contingent risks from the UK financial sector.

"However, Fitch does not currently consider these risks to be sufficiently material to threaten the UK's 'AAA' status."

© 2011 AFP

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