In the wake of gloomier fiscal forecasts, Fitch Ratings has placed the UK’s ‘AAA’ sovereign credit ratings on rating watch negative, indicating a heightened probability of a downgrade.
The rating agency says that the move to put the UK on rating watch reflects the latest economic and fiscal forecasts from the UK Office for Budget Responsibility (OBR), indicating that government debt will peak later and at a higher level than previously expected by Fitch.
General government gross debt and public sector net debt are forecast by the OBR to peak in 2016-2017 at 100.8%, and 85.6%, of GDP, respectively, and only begin to decline in 2017-2018. Fitch’s own projections envisaged gross government debt peaking at 97.3% in 2015-2016.
Moreover, it has said that failing to stabilise gross government debt below 100% of GDP, and on a firm downward path towards 90% over the medium term, would likely result in a downgrade of the UK’s sovereign ratings.
Additionally, Fitch has revised down its forecasts for economic growth in 2013 and 2014 from 1.5% and 2.0%, to 0.8% and 1.8%, respectively. “The persistently weak performance of UK growth, in part due to European growth, has increased uncertainty around the UK’s potential output and longer-term trend rate of growth with significant implications for public finances,” it notes.