The UK has lost its AAA credit rating with the second rating agency this year as Fitch Ratings moved to show its worsening faith in the UK economy.
Fitch follows Moody’s, which lowered its UK outlook in February, by downgrading the UK from AAA to AA+ with a stable outlook.
Fitch blamed a weaker economic and fiscal outlook and upward revisions to UK debt and deficit projections.
The agency praised “significant progress” on deficit reduction but warned there will still be a 6 per cent deficit in 2015 compared to the Government target of eliminating it.
It states: “The slower pace of deficit reduction means the next Government will be required to implement substantial spending reductions – and/or tax increases, – if public debt is to be stabilised and reduced over the medium term.”
The stable outlook is based on a UK commitment to deficit reduction, long-term gilts, improving bank balance sheets and the willingness of the Bank of England to intervene in the economy.
Fitch says there is less than a 50 per cent chance the UK rating will change in the next two years.
Further negative rating action could come from increasing inflation, an escalation of the eurozone crisis and failure to bring down Government debt.
The UK could regain its AAA rating if economic forecasts are revised upwards and the Government brings down the deficit and debt more quickly.