This rating downgrade comes days after a similar decision by S&P agency in the context of significant tax cuts announced by the UK government.
Ratings agency Fitch downgraded the outlook for the UK’s credit rating to negative from stable on Wednesday, days after a similar decision by S&P related to the government’s announced big UK tax cuts on September 23. These pro-growth measures “could lead to a significant increase in budget deficits over the medium term,” Fitch said in its press release.
The US agency maintained its UK government bond rating at AA-, one notch below S&P. However, the decline in the outlook signals the risk of a downgrade of this rating if the country’s economic situation does not improve. The fiscal package, announced without countervailing measures or an independent assessment of its impact on public finances, and the mismatch between fiscal and monetary policies in the face of strong inflationary pressures, have had negative consequences for financial market confidence and the credibility of the policy framework, Fitch said Agency.
A lack of encryption
Liz Truss, who arrived at Downing Street in early September, and her Chancellor of the Exchequer, Kwasi Kwarteng, announced a massive household energy supply plan on September 23, accompanied by huge tax cuts. The lack of figures on the size of the mega-budget package and any projections on the impact of this massive spending plan – with no planned spending cuts and debt financing at a time when inflation is soaring and interest rates are rising – has recently set financial markets on fire Week. The pound fell to its all-time low on September 26th.
The British leader and her minister initially defended their actions before finally announcing on Monday they were abandoning some of the most controversial measures, notably the abolition of the lower tax rate for upper-income groups. The UK government’s long-term borrowing rates have skyrocketed, making financing UK debt more expensive at a time when inflation is nearing 10%, the highest in the G7, and when London is looking to borrow much more.
Also read Debt, Inflation, Interest Rates: Five Numbers to Understand the UK Crisis
All of the stimulus measures, between subsidies for energy bills and sweeping tax cuts (social security contributions, corporate taxes, environmental taxes, etc.) are estimated by economists at between £100 billion and £200 billion, but have not yet been fully calculated by the government. On Friday, rating agency S&P lowered its forecast for the UK’s credit rating, and rival agency Moody’s had already warned Kwasi Kwarteng that his tax strategy risked “permanently weakening the country’s ability to fund itself at affordable costs.” The International Monetary Fund intervened, urging strongly – and unusually – Downing Street to rectify the situation.