Fitch Affirms U.K. At 'AAA'; Outlook Stable

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Friday, the Fitch Ratings affirmed U.K.'s long-term foreign and local currency Issuer Default Ratings at 'AAA'. The rating agency also affirmed country ceiling at 'AAA' and short-term foreign currency rating at 'F1+'.

The rating outlook was stable, reflecting Fitch's expectation, based on the track record of previous episodes of fiscal austerity and debt reduction, that fiscal consolidation over the medium-term would be more ambitious than set out in the 2009-10 Budget.

According to Fitch Ratings, the 'AAA' ratings remained supported by its high-valued added and diversified economy, strong institutions and the sovereign's very strong financing flexibility that was only matched by other major 'AAA' sovereigns.

The rating agency noted that U.K.'s public debt is rising extremely rapidly but it is still projected to be no higher than in other large 'AAA' sovereigns by the end of 2010. However, the Fitch warned that the nation faces one of the most serious post-crisis fiscal adjustment challenges among 'AAA' governments.

General government gross debt is estimated to increase to 80% of GDP by the end of 2010, up from just 44% at end 2007. But, the low starting point for debt at end 2007 and exceptionally low duration and maturity structure of the government debt leaves the government significantly less exposed to interest rate shocks and refinancing risks than its 'AAA' rated peers, enhancing debt tolerance.

Further, the rating agency said unprecedented macroeconomic policy easing allied with the weakening of sterling reduced the risk of deflation. Meanwhile, growth should turn positive in the second half of 2009. In the medium-term, flexible labor and product markets should help the economy to recover faster. However, recovery will remain anaemic in the next couple of years as households continue to deleverage.

The agency said that fiscal policy should be re-oriented more aggressively towards ensuring public debt sustainability over the coming year or so as deflation concerns diminish. The implementation of a more credible medium term fiscal framework would help to reinforce the government's commitment to consolidation and underpin the UK's 'AAA' status.

Friday, the Fitch Ratings affirmed U.K.'s long-term foreign and local currency Issuer Default Ratings at 'AAA'. (Market News Provided by RTTNews)