LONDON – Fitch placed Britain’s AAA rating on review for a downgrade on Friday, a blow to the government just days after it presented an austere budget it argued would put the country on a path to recovery.
Fitch Ratings said it was putting the U.K. on “rating watch negative” — indicating a heightened probability of a downgrade in the near term — and that it expects to complete its review by the end of April.
Its report cited worsening forecasts for government debt and comes just a month after Moody’s Investor’s Service downgraded the U.K.’s credit rating.
The Conservative-led government on Wednesday presented a public spending plan that promised more austerity, despite weakness in the economy, and has raised fears of a third recession in just over four years. It has insisted, in the face of withering criticism, that debt-reduction measures are the best way forward for the country.
That view is not shared by all. After three years of austerity, the country is borrowing more than Treasury chief George Osborne initially thought and the economy is growing far slower than anticipated.
The independent Office for Budget Responsibility estimates that public debt will continue rising until 2016-17, peaking at 85.6 per cent of Britain’s annual gross domestic product. In its last forecast in December, it estimated debt would peak at 79.9 per cent in 2015-16.
Britain’s economy shrank by 0.3 per cent in the last three months of 2012, and many analysts have predicted another contraction in the first quarter of 2013. That would put the U.K. back into a recession — technically defined as two consecutive quarters of economic contraction.
Last month, Moody’s downgraded the U.K.’s triple-A credit rating, saying that sluggish economic growth would hinder the government’s ability to control rising debt and deal with any new financial shocks.