Fitch toughens up on Britain
(16 March 2012 – United Kingdom) Fitch Ratings revised its outlook on Britain’s AAA rating to negative on Wednesday, stating that if the government eases back on its debt cutting stance, the nation could lose its top-notch status.
British finance minister George Osborne is due to present his annual budget to parliament next week after Moody's made a similar judgment just a month ago, both rating agencies warnings are likely to dampen calls for the government to loosen its fiscal stance.
'This is a salutary reminder as to why Britain needs to deal with the enormous debts and deficit that we inherited, why we have got to stick to those plans,' said British Treasury minister Danny Alexander.
'And it should be a wake-up call to anyone who thinks we can afford as a country to loosen the purse strings. We can't afford to do that, and that is why there will be no unfunded giveaways in next week's budget.'
Britain's Conservative-led coalition government has staked its reputation on plans to virtually eliminate a budget deficit that was at a record 11 percent of gross domestic product when it came to power two years ago.
However, progress has been slow due to a faltering domestic economy and weak demand in the euro zone, Britain's biggest trading partner, forcing the government to admit that it will take two years longer than planned to meet its deficit goal.
Britain's Office for Budget Responsibility forecasts that public sector net debt will peak at 78 percent of GDP by 2014/15 but fall thereafter, and Fitch said that although this was consistent with its own forecast for Britain, it was at the limit of the level consistent with a triple-A rating.
'The revision of the rating outlook to negative reflects the very limited fiscal space to absorb further adverse economic shocks in light of such elevated debt levels,' Fitch said in a statement.
'In light of the considerable uncertainty around the economic and fiscal outlook, including the risks posed to economic recovery by ongoing financial tensions in the euro zone and against the backdrop of a still large structural budget deficit and high and rising government debt, the Negative Outlook indicates a slightly greater than 50 percent chance of a downgrade over a two-year horizon,' Fitch said.
And it said that the triggers for a downgrade included 'discretionary fiscal easing that resulted in government debt peaking later and higher than currently forecast.'
'This is a salutary reminder as to why Britain needs to deal with the enormous debts and deficit that we inherited, why we have got to stick to those plans,' said British Treasury minister Danny Alexander.
'And it should be a wake-up call to anyone who thinks we can afford as a country to loosen the purse strings. We can't afford to do that, and that is why there will be no unfunded giveaways in next week's budget.'
Britain's Conservative-led coalition government has staked its reputation on plans to virtually eliminate a budget deficit that was at a record 11 percent of gross domestic product when it came to power two years ago.
However, progress has been slow due to a faltering domestic economy and weak demand in the euro zone, Britain's biggest trading partner, forcing the government to admit that it will take two years longer than planned to meet its deficit goal.
Britain's Office for Budget Responsibility forecasts that public sector net debt will peak at 78 percent of GDP by 2014/15 but fall thereafter, and Fitch said that although this was consistent with its own forecast for Britain, it was at the limit of the level consistent with a triple-A rating.
'The revision of the rating outlook to negative reflects the very limited fiscal space to absorb further adverse economic shocks in light of such elevated debt levels,' Fitch said in a statement.
'In light of the considerable uncertainty around the economic and fiscal outlook, including the risks posed to economic recovery by ongoing financial tensions in the euro zone and against the backdrop of a still large structural budget deficit and high and rising government debt, the Negative Outlook indicates a slightly greater than 50 percent chance of a downgrade over a two-year horizon,' Fitch said.
And it said that the triggers for a downgrade included 'discretionary fiscal easing that resulted in government debt peaking later and higher than currently forecast.'
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