Zhitong Finance and Economics learned that the rating agency Fitch maintained a "negative" outlook on the UK's debt rating, and said that this outlook reflects the uncertainty of the UK's fiscal consolidation prospects. This means that there is still a possibility that the UK will lose its current "AA-" debt rating.
Fitch downgraded its outlook on UK debt to 'negative' from 'stable' to 'negative' on 5 October 2022 following a series of fiscal policies led by former UK Prime Minister Liz Truss** that triggered violent turmoil in UK markets. Fitch has detailed a number of factors that contributed to the downgrade. The first factor with a high weight is "tax cuts and higher budget deficits". Fitch said at the time that "the large and unfunded fiscal package announced by the UK** as part of the new growth plan could lead to a significant increase in the fiscal deficit in the medium term".
Moody's Investors Service upgraded its outlook for the UK to "stable" from "negative" in October, and said the UK's "policy viability" had recovered after last year's disastrous "mini-budget". S&P's outlook for the UK remains "stable".
It was hoped that Fitch would follow Moody's in doing the same and raise its outlook for the UK. But Fitch's decision is undoubtedly another setback for British Prime Minister Rishi Sunak. Opinion polls show that the opposition Labour Party is expected to win next year's campaign. After failing to reverse the poll results, Sunak is under increasing pressure from his Conservative Party. In addition, Sunak has struggled to gain support from voters, who accuse him of creating a growing tax burden.
In addition, Fitch expects the UK to grow by 05%, but a mild recession will pull growth down to 03% and then back up to 1 in 20258%。The agency also expects the UK's fiscal deficit to reach 5 percent of gross domestic product (GDP) in 20234%。
Fitch's decision is a sort of judgment on the autumn budget report released by UK Chancellor of the Exchequer Jeremy Hunt last week. To boost the Conservative Party, Hunt announced the biggest tax cut since the 80s of the 20th century, which included a £10 billion cut in payroll tax. However, this is only a fraction of the amount of tax that the UK** collects from workers by freezing the income tax threshold for 2022-2028.
Overall, the UK's fiscal deficit will fall by 2 percentage points of GDP over the next two years, according to the Fiscal Watchdog, but there are doubts that the UK** will be able to deliver on its pledge to reduce debt to GDP within five years. The UK, which has one of the slowest economic growth in the G7, may find it difficult to stick to its public spending plan, which has been widely described as incredible austerity.
Another negative factor for the UK's public finances is the repayment of 2The cost of £7 trillion in government bonds, a quarter of which is linked to the Retail Sales** Index (RPI) inflation rate. High inflation and high interest rates mean that the cost of debt in the UK** is expected to exceed £100 billion a year, a threefold increase since 2016.