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Fitch Issues Downgrade Warning to UK
On Monday, Fitch Ratings sent a stark warning to the UK government, prompting them to enforce stringent spending control measures for their upcoming budget to avert a potential downgrade.
Currently, Fitch uses an AA- grade to assess the UK, implying an impending downgrade, whilst simultaneously expressing a negative outlook. This is in anticipation of next month’s budget announcement, wherein there’s speculation that the beleaguered Conservative government may introduce tax cuts in a bid to win favour ahead of an imminent election.
UK's Rising Deficit and Debt
"We project that the UK’s overall government deficit escalated to 6% of GDP in 2023, from 4.7% of GDP in 2022, significantly exceeding the ‘AA’ category’s median of 2.7%," stated Fitch. This was along with the observation that the national debt level, which is slightly above 100% of GDP at present, is virtually "twice" the median.
The main area of concern will be whether the government's impending policy initiatives -- set against the background of decreasing inflation, financing costs, and likely net borrowing --will assist in decreasing Britain's debt ratio.
Reducing Fiscal Uncertainty
Fitch underscored the importance of policy decisions in "cutting down fiscal uncertainty in the UK," pointing out that its subsequent planned assessment of the UK economy would occur a few weeks following the March 6 budget, on March 22.
The credit rating agency added, "The implementation of monetary contraction proposed after the election would necessitate real reductions in non-safeguarded expenditure, posing a political challenge."
