Fitch Ratings reiterated the UK's long-term foreign currency rating at AA-, but revised the outlook from negative to stable. According to the agency, this decision reflects the cooling of risks to the country's economic policy, which should stabilize the ratio of debt to gross domestic product (GDP) from the end of 2025.
The agency says the government is focusing on bridging the fiscal deficit after a series of shocks from the Covid-19 pandemic and rising energy prices. At the same time, according to the analysis, there is a greater balance between the state of the public accounts and the Bank of England's (BoE) objectives to reduce inflation to the 2% target.
“Despite the uncertainty surrounding the United Kingdom's post-election budgetary strategy, Fitch's cautious forecasts suggest a balance between political priorities and minimizing risks to the sustainability of public finances,” he says. .
The firm predicts that British gross domestic product (GDP) will practically stagnate in 2024 with a positive variation of 0.2%. Growth is expected to increase to 1.7% in 2025, still below the average of peers with the same rating, which is an increase of 2.5%.
Fitch also believes that gross government debt will rise from 101% of GDP in 2023 to 103.6% in 2024, before stabilizing at 105% of GDP in 2025. According to the report, it must respond to future shocks.
“The UK's deep capital markets, lack of foreign currency debt and the reserve currency status of the pound sterling support the sovereign government's strong fiscal flexibility,” he muses.
On monetary policy, Fitch expects the BoE to remain “cautious” in its monetary easing process, cutting interest rates from 5.25% currently to 4.5% by the end of this year and to 3.5% by the end of this year.
