UK credit rating boost
Spending cuts and the improving health of the UK banking sector should ensure the UK retains its gold-plated credit rating, a leading agency said today.
Fitch reaffirmed its triple A rating but warned the legacy of the global financial crisis continued to weigh on the economic and fiscal outlook.
"Nonetheless, the strong budgetary consolidation effort and declining fiscal risks arising from the UK financial sector support the stable outlook on the UK's AAA ratings," Fitch director Maria Malas-Mroueh said.
The report added there was a risk that inflationary pressures, including from higher oil prices, could result in a sharper than expected hike in interest rates, with the potential to hurt the economy.
The update represents a further vote of confidence in Chancellor George Osborne's deficit reduction measures in the wake of last year's spending review.
The agency added: "In Fitch's opinion, the deficit reduction plan is credible and the forthcoming budget is expected to reaffirm the Government's commitment to the path of deficit reduction."
The report said the UK recovery was "under way but fragile", adding that it expected the economy to expand by 1.6% in 2011 and 1.7% in 2012. This compared with the 2.1% and 2.6% forecast by the Office for Budget Responsibility in November.
Support from agencies such as Fitch is key for Mr Osborne's plans, given prime credit ratings are vital to enable countries to borrow at affordable rates.
If a credit rating is downgraded, it could lead to higher borrowing costs as it makes international investors less likely to buy Treasury bonds.