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Cost of Govt rescue equivalent to 7% of GDP, says Fitch

Fitch Ratings has estimated the gross fiscal cost of the Government response to the financial crisis is 7 per cent of gross domestic product.

Fitch says the gross fiscal cost of UK Government measures is £100bn, which is of a similar magnitude in relation to national income as the US £1trn measures over recent weeks and months.

But Fitch expects the net fiscal cost to the UK to be substantially less as it is acquiring assets that will generate income even though they are of uncertain value.

The agency has warned there is the potential for more writedowns in the UK banking sector but has welcomed the Government’s rescue package.

Fitch said the UK Government’s AAA rating is not threatened despite the high fiscal cost of the rescue package.

The agency says the move to increase participating banks’ capital is positive as it warns that within the UK banking sector “potential remains for additional writedowns on credit market exposures”.

It expects that a number of wholesale and investment banking businesses earnings volatility with those exposed to weakening economies and housing markets coming under pressure.

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