“Britain’s credit standing took a further blow on Friday when Fitch Ratings became the second major international agency to strip the country of its top-notch credit rating.
The move is an embarrassment for Britain’s Conservative-led government which promised to protect the country’s rating when it took power in 2010, and will heighten the debate about whether austerity is still the right approach.
Fitch trimmed the rating to AA-plus from AAA, citing a weaker economic and fiscal outlook. But it returned the outlook to “stable,” removing the threat of any further rating action, at least in the near term.
“The fiscal space to absorb further adverse economic and financial shocks is no longer consistent with a ‘AAA’ rating,” it said in a statement.
Economic stagnation has pushed the government’s deficit reduction program several years off track, leading critics to argue the government should focus less on the deficit and more on growth. 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.
But although sterling fell in the immediate aftermath, analysts said the downgrade was likely to have limited impact on debt markets or the government’s economic policy.
“The downgrade only tells us what was already known: that fiscal consolidation has ground to a halt and that the growth outlook is poor,” said Rob Wood, UK economist at Berenberg Bank.
Moody’s was the first agency to downgrade Britain in February and Standard & Poor’s has said there is at least a one-in-three chance it will follow suit….”
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