LONDON: Ratings agency Fitch has lowered the outlook for its credit rating for British government debt to “negative” from “stable” on Wednesday, days after a similar move from rival Standard & Poor’s following the government’s Sept 23 fiscal statement.
“The large and unfunded fiscal package announced as part of the new government’s growth plan could lead to a significant increase in fiscal deficits over the medium term,” Fitch said.
Fitch maintained its AA- credit rating for Britain, which is one notch lower than S&P’s.
Finance minister Kwasi Kwarteng announced £45bil (US$51bil or RM236bil) of unfunded tax cuts in the Sept 23 statement alongside large energy subsidies and other measures aimed at boosting growth, but financial markets baulked at the extra borrowing.
Sterling fell to a record low against the US dollar and some British government bonds tumbled by the most in decades.
This forced the Bank of England (BoE) to step in to stabilise markets.
Fitch said the lack of independent budget forecasts, as well as an apparent clash with the BoE’s inflation-fighting strategy had “negatively impacted financial markets’ confidence and the credibility of the policy framework, a key long-standing rating strength”.
On Monday, Kwarteng said he would not go ahead with part of the tax cuts – lowering income tax for the top 1% of earners – which the finance ministry had estimated would cost £2bil (RM10.5bil) a year.
Fitch said this was not enough to change its broader assessment.
“Although the government reversed the elimination of the top rate tax ... the government’s weakened political capital could further undermine the credibility of and support for the government’s fiscal strategy,” Fitch said.
The ratings agency forecast Britain’s general government deficit would reach 7.8% of gross domestic product (GDP) this year and 8.8% in 2023, while general government debt would rise to 109% of GDP by 2024. — Reuters
