Fitch downgrades UK rating outlook to ‘negative’

Fitch downgrades UK rating outlook to 'negative'

The downgrade came a few days after a similar decision by the S&P agency related to a significant tax cut announced by the British government.

Rating agency Fitch on Wednesday worsened the outlook for the UK rating fromstable” in “negative”, a few days after a similar decision by the S&P agency related to the significant tax cuts announced by the UK government on September 23. These measures are taken to promote growthcould lead to a significant increase in the budget deficit in the medium termFitch said in a statement.

The US agency maintained the UK’s sovereign debt rating at AA-, one notch lower than S&P. But the decrease in the forecast indicates the risk of lowering this rating if the economic situation in the country does not improve. Budget packageAnnounced without compensatory measures or an independent assessment of their impact on public finances, and the divergence between fiscal and monetary policy, given strong inflationary pressures, had, in Fitch’s view, negative consequences for consumer confidence.Financial markets and confidence in policy frameworks“, the agency said.

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Liz Truss, who arrived in Downing Street at the beginning of September, and her Finance Minister Kwasi Kwarteng announced on September 23 a massive energy support plan for households, accompanied by significant tax cuts. The lack of numbers on the size of the mega-budget package and forecasts of the impact of this massive spending plan — with no planned spending cuts and debt-financed at a time when inflation is soaring and rates are rising — has fired up financial markets of late. week. The pound fell to an all-time low on September 26.

The British leader and her ministers initially defended their approach before finally announcing on Monday that they would abandon some of the most controversial measures, notably the scrapping of the top tax rate for the highest income bracket. Long-term UK government borrowing rates have soared, making it more expensive to finance UK debt at a time when inflation has soared to nearly 10%, the highest in the G7, and where London wants to borrow much more.

Economists are evaluating all kinds of stimulus, from help paying electricity bills to outright tax cuts (social security deductions, corporate tax, environmental contributions, etc.), but they haven’t been fully accounted for. by the government. On Friday, ratings agency S&P downgraded its outlook for Britain’s rating, while rival agency Moody’s has already warned Kwasi Kwarteng that his tax strategy is at risk of “constantly weaken the country’s ability to finance itself at an affordable cost“. The International Monetary Fund intervened in the case, which sharply and unusually called on Downing Street to correct the situation.

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