Fitch affirms UK at AA- with a negative outlook

Fitch on the UK rating

From Fitch, who lowered the UK to AA- in March.

The UK’s ratings balance a high income, diversified and advanced economy against high and rising public sector indebtedness. Sterling’s reserve currency status, deep capital market and strong governance indicators support the ratings. The very long average maturity of public debt (15 years) is among the highest of all Fitch-rated sovereigns and mitigates refinancing and interest rate risks. Public debt is almost exclusively in sterling, so a weaker exchange rate will not lead to a deterioration in debt dynamics.

The Negative Outlook reflects the impact the coronavirus pandemic is having on the UK economy and the resulting material deterioration in the public finances, with Fitch forecasting the fiscal deficit to materially widen this year and government debt set to increase to well over 120% of GDP over the next few years. Moreover, potential changes to the future trade relationship with the EU could constrain the post-crisis economic recovery.

We expect a sharp increase in the general government deficit from 2.2% in 2019 to 17.7% of GDP in 2020, well above the peak of the deficit increase during the global financial crisis and above the projected current ‘AA’ category median of 8.5% of GDP. The increase in the deficit is the result of the sharp decline in economic activity and operation of automatic stabilisers, as well as the government’s measures to support the economy and address the health emergency. We estimate the direct cost of fiscal policy measures since March at GBP200 billion (9% of GDP).

S&P rates the UK AA and Moody’s is at Aa2.

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