Fitch places Britain's top rating on negative watch

23rd March 2013, Comments 0 comments

Fitch announced on Friday that it had placed Britain's top-level AAA credit rating on watch for possible downgrade because the government's latest forecasts expect debt to peak later and at a higher level than previously expected.

The news came one month after rival agency Moody's stripped Britain of a triple-A debt rating, saying government debt was still mounting and that growth was too weak to reverse the trend before 2016.

"Fitch Ratings has placed the United Kingdom's 'AAA' Long-term Issuer Default Ratings on rating watch negative (RWN) indicating a heightened probability of a downgrade in the near term," the agency said in a statement on Friday.

This "reflects the latest economic and fiscal forecasts published by the Office for Budget Responsibility (OBR) that indicate that UK government debt will peak later and at a higher level than previously expected".

Fitch said it plans to complete its review of Britain by the end of April.

Prime Minister David Cameron's government said the announcement reflected the economic challenges it faced but insisted it would not be deterred from its austerity programme designed to drive down a record budget deficit.

"This underlines that there are no easy answers to problems built up over many years. But we are, slowly but surely, fixing our country's economic problems," a Treasury spokesman said.

"The deficit is down by a third and one and a quarter million new private sector jobs have been created."

However, the opposition Labour party warned Fitch had dealt yet another blow to finance minister George Osborne, who used his annual budget on Wednesday to warn he would not change his course.

"George Osborne's plan has catastrophically failed on growth, living standards and the deficit," said Labour's Treasury spokesman, Chris Leslie.

"But instead of a change of direction and action to kickstart the flatlining economy, all we got this week was more of the same failing policies."

Gross government debt is now forecast to peak in 2016-17 at 100.8 percent of gross domestic product before starting to decline.

"Fitch has previously stated that GGGD failing to stabilise below 100 percent of GDP and on a firm downward path towards 90 percent over the medium term would likely result in a downgrade of the UK's sovereign ratings," the agency said.

Howard Archer, chief UK and European economist at the economic and financial analysis firm IHS Global Insight, said the decision was "entirely predictable".

"And there can be little doubt that the agency will follow through with a downgrade to AA," he said.

On Wednesday, Osborne unveiled another painful austerity budget that also slashed economic growth forecasts and raised borrowing estimates.

The economy is now expected to grow by just 0.6 percent 2013, compared with previous guidance of a 1.2-percent expansion, according to the OBR.

© 2013 AFP

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