The credit rating agency Fitch Ratings confirmed the solvency rating of “AA-” for the United Kingdom, but exacerbated its outlook to negative from stable, after the tax cut package announced by the British government to boost growth.
The agency said in a statement that the fiscal measures, including capping energy prices and canceling the previous executive’s consolidation plans, “could lead to a significant increase in the deficit in the medium term.”
Thus, Fitch sees that without compensating measures, the public deficit will remain at 7.8% of GDP in 2022 and will rise to 8.8% in 2023, compared to the average of 2% for AA-rated issuers.
It also warns that a change in the UK’s fiscal trajectory will push public debt to 109% of GDP by 2024 from 101% in 2022, reflecting higher primary deficits and weaker growth prospects. That level would be more than double the average for AA exporters, estimated at 49%.
On the other hand, the agency notes that the large fiscal stimulus, announced without compensatory measures or an independent assessment of the macroeconomic and fiscal impact, and the inconsistency between fiscal and monetary policy stance under strong inflationary pressures, “affected the confidence and credibility of financial markets.”
“We believe that comments from the Chancellor of the Exchequer (UK) hint at the possibility of additional tax cuts and the potential change in fiscal rules enacted in January reduces the predictability of fiscal policy, the risk rating agency confirms.
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