Rating agency Fitch downgrades Britain’s credit outlook

Credit rating agency Fitch downgraded the UK’s debt outlook from “stable” to “negative” on Wednesday, days after a similar move by S&P, due to the package of energy subsidies for households and tax cuts announced by British Government on 23 September.

The Conservative government’s measures under Liz Truss to not eat into growth “could lead to a large increase in budget deficits over the medium term,” he explained in a statement.

The US house places the creditworthiness of the British government at AA-, one level below that of S&P. Yesterday’s downgrade of his outlook means he may revise it down if he doesn’t see the situation improving in the coming months.

The announced fiscal package, without providing for “financing” nor “independent costing of its fiscal impact”, in Fitch’s opinion, will have “negative consequences for the confidence of the financial markets and the solvency of the political framework”, summarized the house.

Mrs Truss, who became the occupant of Number 10 Downing Street at the beginning of September, and new Finance Minister Kwazi Kwarteng announced on September 23 a plan to support households with energy costs and big tax cuts. The tax package was expected to cost around £45 billion. But the fact that the government’s giant spending plan was not accompanied by other spending cuts or a bond-issuing program at a time when inflation is at record highs and interest rates are rising, unexpectedly put London in the crosshairs of markets last week: Sterling fell to an all-time low on September 26.

On Monday, the prime minister and her minister, who initially defended the plan, eventually walked back some of the most controversial measures, particularly the tax rate cut for the highest earners.

The UK government’s long-term borrowing costs have risen sharply, complicating the refinancing of public debt, at a time when inflation hovers around 10% — the highest in the G7 — and London is tipped to seek further government borrowing.

Some economists believe that the measures announced by Ms Truss’s government will actually cost the public between £100bn and £200bn.

On Friday, S&P downgraded the outlook for Britain’s sovereign debt, while the third of the so-called major rating agencies, Moody’s, warned that Mr Kwarteng’s fiscal approach risks even “permanently” eating away at London’s ability to ” is borrowed at an affordable cost”. The International Monetary Fund stepped in—unusually—to urge Downing Street to correct course.

According to Fitch’s calculations, Britain’s general government deficit will reach 7.8% of GDP this year and 8.8% in 2023, while debt will rise to 109% of GDP by 2024.

RES-EMP

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