UK placed on watch for credit rating downgrade

On Wednesday, George Osborne had to admit that he would not reach his deficit control target for an extra year. Picture:
On Wednesday, George Osborne had to admit that he would not reach his deficit control target for an extra year. Picture:
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THE UK’s credit rating suffered a fresh blow last night after a major agency placed it on watch for a downgrade.

Fitch warned Britain faced a negative outlook days after Chancellor George Osborne, unveiled dire growth and borrowing figures in his Budget.

Another of the big ratings agencies, Moody’s, became the first to strip Britain of its gold-plated AAA assessment last month.

Fitch has placed the UK on “rating watch negative”, indicating there is a “heightened probability of a downgrade in the near term”.

It expects to complete a full review of the sovereign credit-rating by the end of April.

The agency said the move “reflects the latest economic and fiscal forecasts published by the Office for Budget Responsibility (OBR), that indicate UK government debt will peak later, and at a higher level, than previously expected by Fitch”.

The OBR is now predicting that general government gross debt (GGGD) will peak at 100.8 per cent in 2016-17 – a level Fitch has previously suggested would result in a downgrade.

“The persistently weak performance of UK growth, in part due to European growth, has increased uncertainty around the UK’s potential output and longer term trend rate of growth with significant implications for public finances,” the agency said.

In response to the Fitch announcement, the Treasury said: “This serves to underline that there are no easy answers to problems built up over many years. But we are, slowly but surely, fixing our country’s economic problems.

“As the Chancellor said at the Budget: it’s taking longer than anyone hoped, but we’re on the right track.”

However, shadow treasury minister Chris Leslie said: “This is yet another blow to a downgraded Chancellor who made keeping the confidence of the credit-rating agencies the number one test of his economic policy.

“What really matters are the economic realities which Fitch are responding to including, as their statement says, ‘the persistently weak performance of UK growth’.”

In recent months ministers have attempted to downplay the importance of credit ratings, seeking to detract from the threat that dire economic circumstances would lead to a downgrade for the UK, in line with those for the US and France.

However, the triple-A credit status was, for a long time, used by the Conservative and Liberal Democrat coalition as a vindication of its austerity measures and proof that they were getting debt under control.

On Wednesday, Mr Osborne had to admit that he would not reach his deficit control target for an extra year, putting it back to 2017-18 having already postponed it a year to 2016-17 in December’s Autumn Statement.

The UK’s credit status dictates the rates at which the Treasury can borrow and issue bonds.

Currently, they are still at a historic low, but there are fears that interest rates for UK borrowing will now increase,, hitting the cost of living.

High interest rates for countries such as Ireland, Greece and Portugal have seen those countries forced to ask for bailouts to underpin their economies.