Budget prompts UK downgrade threat from Fitch

Ratings agency Fitch has placed the UK’s AAA long-term issuer default rating on negative watch, which means it is at heightened risk of a downgrade in the near term.

The UK has already lost its AAA rating from rival agency Moody’s following a one-notch downgrade in February to AA1.

Fitch said the negative rating watch reflects the economic and fiscal forecasts published by the Office for Budget Responsibility (OBR) last week, which indicate that UK government debt will peak later and at a higher level than the rating agency previously expected.

General government gross debt (GGGD) and public sector net debt are forecast by the OBR to peak in 2016/2017 at 100.8% and 85.6% of GDP and only begin to decline in 2017/2018.

Fitch has previously stated that GGGD failing to stabilise below 100% of gross domestic product and on a firm downward path towards 90% over the medium term would likely result in a downgrade of the UK’s sovereign ratings.

Fitch expects to complete its review of the UK’s sovereign ratings by the end of April.