Fitch cuts UK credit rating on "weaker economic and fiscal outlook"

Fitch cuts UK credit rating on 'weaker economic and fiscal outlook'


Britain has been stripped of its AAA credit rating by a second rating agency
as a result of poor growth.








The Treasury said Fitch's
decision 'is a stark reminder that the UK cannot simply run away from its
problems' Photo:
PA






By Philip Aldrick

6:05PM BST 19 Apr 2013


511 Comments




Fitch joined Moody’s in
downgrading the UK to AA+ “to reflect a weaker economic and fiscal outlook” that
has caused both the budget deficit and national debt to soar above earlier
forecasts.


It means that only Standard & Poor’s has the UK on
the top rating, albeit on “negative outlook”.


The downgrade was blamed on “the weak growth performance of the UK economy in
recent years, partly due to private and public sector deleveraging and the
eurozone crisis”.


It will come as another damaging blow to the Chancellor, who has already been
under pressure from the International Monetary Fund this week to kick start
growth by easing up on austerity.


However, Fitch said its decision to place the UK on a “stable” outlook
“assumes a continued policy commitment to reducing the underlying budget
deficit”.



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And, in words that appeared to contradict the IMF, it argued that the UK lost
its top rating because there was no “fiscal space to absorb further adverse
economic and financial shocks”.

Speaking in Washington, George Osborne hinted he would reject a likely demand
from the IMF next month to fundamentally alter his £130bn austerity programme.


Asked if he would follow a different IMF plan, he said: “It depends whether
you agree with that advice.”

Defending his current strategy and risking a fight with the Fund, he added:
“What the IMF has asked us to do is to show flexibility and credibility. The
Autumn Statement and Budget demonstrated that by not chasing the debt target and
taking additional measure to support the economy.”

He was also dismissive of IMF chief economist Olivier Blanchard’s claim that
the UK was “playing with fire”, saying he was “just one voice” at the IMF. He
added that the IMF has recommended countries reduce their deficit at a rate of
1pc a year and “we are bang on that”.

Fitch cut its UK growth forecast for this year from 1.5pc to 0.8pc and for
next year from 2pc to 1.8pc. “The UK economy is not expected to reach its 2007
level of real GDP until 2014, underscoring the weakness of the economic
recovery,” it added.

Gross national debt is now expected to peak at 101pc of GDP in 2015, rather
than 97pc, and not to start falling until 2017.

“Weak economic performance and growth prospects, relatively high levels of
private and foreign as well as public debt, along with sizeable twin fiscal and
current account deficits, are weaknesses relative to rating peers,” it said.


A Treasury spokesman said: “This is a stark reminder that the UK cannot
simply run away from its problems, or refuse to deal with a legacy of debt built
up over a decade. Though it is taking time, we are fixing this country’s
economic problems.”