U.K. Dodges Downgrade From Fitch With Outlook Shifted to Stable

Commuters walk along London Bridge in U.K. (Photographer: Jason Alden/Bloomberg)

U.K. Dodges Downgrade From Fitch With Outlook Shifted to Stable

The outlook for the U.K.’s sovereign debt score has been upgraded to stable by Fitch Ratings, which said Friday that the country’s economy and public finances have proved more resilient to the pandemic shock than the credit assessor had anticipated.

Fitch previously had a negative outlook on the U.K., but the country avoided being downgraded, with the firm keeping its rating at AA-, its fourth-highest grade, according to a statement Friday.

“Stronger economic activity will support tax receipts and contribute to a smaller fiscal deficit despite the pandemic response stimulus spending,” according to Fitch.

The firm had put the U.K. on notice for a possible downgrade in March last year, days after Prime Minister Boris Johnson imposed a nationwide lockdown to fight the coronavirus. A rapid vaccination program has put the U.K. on course for a strong recovery from the deepest recession in three centuries, but the damage inflicted on the public finances may take years to repair.

In the last fiscal year, the budget deficit totaled 300 billion pounds, or more than 14% of GDP -- the highest in British peacetime. Borrowing is forecast to remain above 200 billion pounds in 2021-22 after Chancellor of Exchequer Rishi Sunak extended support programs such as job subsidies in his March budget. Government debt is now at almost 100% of GDP for the first time since the early 1960s.

Fitch nonetheless forecasts that the general government deficit will narrow to 5.9% of gross domestic product in 2022 as fiscal revenues recover with nominal GDP, and to fall gradually thereafter as the government implements back-loaded fiscal consolidation measures, it said.

“We now project general government debt to rise gradually and peak at 110% of GDP by end-2024, 10pp lower than at our previous review in January 2021,” Fitch said.

The U.K. is rated Aa3 by Moody’s Investors Service and AA by S&P Global Ratings.

©2021 Bloomberg L.P.

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