The ratings agency says the UK’s ratings remain supported by its “high-valued added and diversified” economy along with its “robust institutions and the sovereign’s very strong financing flexibility”.
But Fitch has warned that general Government gross debt is projected to rise to 80 per cent of GDP by the end of 2010, up from just 44 per cent at end 2007. It says this is the most rapid rate of deterioration among AAA sovereigns, slightly faster than the US and Spain.
The ratings agency says as a result, the UK faces one of the most serious post-crisis fiscal adjustment challenges among AAA governments. It says the stable outlook is reliant on the assumption that fiscal consolidation over the medium-term will be more ambitious than set out in the last Budget.
This affirmation is in contrast to the recent ‘negative ratings watch’ imposed on the UK by Standard & Poor’s.
Fitch says UK economic growth should turn positive in the second half of 2009 as the pace of inventory decline slows and fiscal policy measures take effect, but recovery will remain anaemic in the next couple of years as households continue to deleverage.
Fitch says: “Fiscal policy will need to be re-orientated more aggressively towards ensuring public debt sustainability over the next year or so as deflation concerns diminish. The implementation of a more credible medium term fiscal framework would help buttress the government’s commitment to consolidation and underpin the UK’s AAA status.”