Fitch reaffirms UK AA rating – changes outlook to negative – 05/10/2022

Fitch reaffirmed the UK’s rating at AA- on Wednesday, changing the outlook from stable to negative. The rating agency said in a statement that the change in the forecast reflects attempted tax cuts and the potential for a higher budget deficit. In his view, the large unfunded fiscal package announced as part of Prime Minister Liz Truss’s new government growth plan could lead to a significant increase in the fiscal deficit in the medium term.

Without compensating measures, the fiscal deficit will remain at 7.8% of GDP in 2022 and increase to 8.8% in 2023, as you expect, before declining to 7.2% in 2024. Short-term inflation, for example, from by linking benefits and pensions, and also due to structural factors in areas such as education, social assistance or health,” Fitch said.

The agency says the change in fiscal trajectory will push public government debt to 109% of GDP by 2024 from 101% in 2022, reflecting higher primary deficits and weak growth prospects. He recalls that government bond yields have increased dramatically in recent months, reflecting higher interest rates and uncertainty about fiscal strategy.

The huge fiscal stimulus, announced without compensatory measures or independent assessment of the macroeconomic and fiscal impact, and the mismatch between the position of fiscal and monetary policy in the face of strong inflationary pressures, in Fitch’s view, negatively affected financial markets. Moreover, it has undermined the confidence and credibility of the policy framework, a long-standing ranking force.