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Budget 12: No impact on rating, says Fitch

Yesterday’s Budget had no impact on the safety of the UK’s AAA credit rating from Fitch.

Earlier this month Fitch cut the UK’s rating outlook from stable to negative, warning that the economy would struggle to absorb unexpected shocks.

The agency says yesterday’s “fiscally neutral” Budget contained no unfunded tax cuts or spending promises, confirmed the Government’s commitment to deficit reduction and was bolstered by a slight improvement in growth projections from the Office for Budget Responsibility.

In a statement Fitch says: “The 2012 Budget does not impact Fitch’s assessment that the UK’s ’AAA’ sovereign rating is warranted but is vulnerable to adverse shocks.”

“However, the scale of the fiscal challenge remains large relative to its ’AAA’ peers.”

It will come as good news to Chancellor George Osborne who has put a lot of weight on claims his restructuring of public finances will command the confidence of the markets. He has announced policies like the National Loan Guarantee Scheme that in part rely on the UK Government being able to access low interest rates on the money markets.

The OBR now predicts gross government debt will peak at 92.7 per cent of GDP in 2014/15, compared to its November estimate 93.9 per cent. Fitch says it expects gross debt to peak at over 90% of GDP in 2014/15 before gradually declining.

The statement says: “Retaining the ’AAA’ status is conditional on debt stabilising by the middle of the decade and declining in the foreseeable future to below 90%.”



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