Outlook on UK debt negative, says Fitch

FITCH RATINGS revised its outlook on the United Kingdom’s sovereign long-term issuer default rating to negative from stable.

However, the agency affirmed the UK’s long-term ratings at their current triple-A level.

“The revision of the rating outlook to negative from stable reflects the very limited fiscal space to absorb further adverse economic shocks in light of such elevated debt levels and a potentially weaker than currently forecast economic recovery,” Fitch said last night in a statement.

It said the triggers that could prompt a rating downgrade were a downward revision of the country’s medium-term growth potential, adverse shocks that would imply higher levels of government borrowing and debt, and “discretionary fiscal easing that resulted in government debt peaking later and higher than currently forecast”.

In affirming Britain’s AAA ratings, Fitch said it reflected the progress made in reducing the government’s structural budget deficit and the credibility of the fiscal consolidation effort.

It said the UK budget to be delivered next week by chancellor of the exchequer George Osborne was expected to reaffirm the government’s commitment to deficit reduction.

Despite the austerity measures, Fitch said the projected peak for government indebtedness is at the limit of the level consistent with the UK retaining its triple-A status.

“With debt not expected to peak until 2014/15, three fiscal years from now, the risks and uncertainty surrounding the realisation of debt reduction by the middle of the decade are material,” the American-based ratings agency said.

It said that, in the absence of adverse shocks, “Fitch does not expect to resolve the negative outlook” until 2014. – (Bloomberg)