29 11 2013

UK stripped of AAA rating by Fitch

Britain’s credit standing has suffered a further blow after Fitch became the second international agency to strip the country of its AAA rating.

Citing a weaker economic and fiscal outlook it now rates the UK as AA+ with a stable outlook.

It was bad news for Britain’s Conservative-led government which promised to slash the deficit and protect the rating when it took power three years ago.

Moody’s was the first to strip the UK of its triple A rating in February and Standard & Poor’s has said there is at least a one-in-three chance it will follow suit.

Sluggish economic growth has pushed the government’s deficit reduction programme several years off track, leading to criticism that its harsh austerity programme is counter productive.

Even the International Monetary Fund, once a key ally in the case for fiscal austerity, has urged Britain to consider slowing the pace of deficit cuts.

Osborne defiant

Finance minister George Osborne admitted last month that growth this year would be half the level previously assumed and public debt would rise for several more years.

Fitch’s downgrade will be seized upon by critics of the government’s austerity policy, but market reaction is likely to be more muted. France and the United States have both lost their triple-A rating with more than one agency without any major loss of investor confidence.

The move comes just days after the International Monetary Fund cut the UK’s growth outlook for 2013 to just 0.7 percent, down from 1.0 percent – more than any other advanced economy.

The IMF said Osborne should reconsider his austerity plan to hasten the recovery.

Osborne’s aides have said he will defend his plans “aggressively” when an IMF team arrives in London next month to make their annual assessment of the British economy.