(New York) The rating agency Fitch on Wednesday lowered the outlook for the United Kingdom’s rating from “stable” to “negative”, days after a similar decision by the agency S&P, linked to the significant tax cuts announced by the British government on September 23.
Posted at 7:12 p.m.
These growth-enhancing measures “could cause fiscal deficits to rise significantly over the medium term,” Fitch said in its statement.
The US agency maintained its rating for UK sovereign debt at AA –, one notch below that of S&P. But the drop in outlook signals the risk of a downgrade in this rating if the country’s economic situation does not improve.
The budget package “announced without compensation measures or an independent assessment of its impact on public finances, and the mismatch between fiscal and monetary policies, given the strong inflationary pressures, had, in Fitch’s opinion, negative consequences for the confidence of the financial markets and the credibility of the political framework”, details the agency.
Liz Truss, who arrived in Downing Street in early September, and her Chancellor of the Exchequer Kwasi Kwarteng announced on September 23 a massive energy support plan for households, accompanied by vast tax cuts.
The absence of figures on the amount of the mega budget package and 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 rates are climbing – set the financial markets on fire last week.
The pound fell on September 26 to its all-time low.
The British leader and her minister initially defended their approach before finally announcing on Monday that they would abandon some of the most controversial measures, in particular the abolition of the lower tax rate for the upper income bracket.
Long-term UK government borrowing rates have soared, making funding for UK debt more expensive at a time when inflation is soaring to nearly double digits, the highest in the G7, and where London wants to borrow a lot more.
All of the stimulus measures, between aid for energy bills and all-out tax cuts (social security contributions, corporate tax, environmental contributions, etc.), are estimated at between 100 and 200 billion pounds by economists, but n has not been fully costed by the government.
On Friday, ratings agency S&P lowered its forecast for Britain’s rating, and rival agency Moody’s had already warned Mr Kwarteng that his fiscal strategy risked “permanently weakening the country’s ability to finance at an affordable cost.
The International Monetary Fund got involved, calling sharply – and unusually – Downing Street to correct the situation.