Fitch’s announcement that it is downgrading the UK’s credit rating to AA+ isn’t as politically explosive as the downgrade from Moody’s in February, as it was inevitable that once one major ratings agency dropped the AAA, the others would follow like dominoes. The bigger story will be when all agencies have dropped the rating.
Fitch said this afternoon that the reason for the downgrade was that ‘the fiscal space to absorb further adverse economic and financial shocks is no longer consistent with a ‘AAA’ rating’. The agency forecasts that general government gross debt will peak at 101 per cent of GDP in 2015/16, having previously warned that failure to turn this around and place debt on a downward trajectory towards 90 per cent of GDP would trigger a downgrade.
It also pointed to the budget deficit, warning, as the IFS did after the Budget, that ‘the slower pace of deficit reduction means that the next government will be required to implement substantial spending reductions (and/or tax increases) if public debt is to be stabilised and reduced over the medium term’.
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