Fitch sparked a fresh round of sovereign rating shenanigans on Tuesday, with a declaration on Reuters Television that among large developed countries still rated triple-A, the UK was “potentially most at risk” of losing its gilt-edged designation.
The other countries rated triple-A by Fitch are the US, Germany and France.
David Riley, co-head of sovereign ratings at Fitch, said the UK’s parlous situation reflected the fact that “it faced the largest budget adjustment”.
Here are some of his comments — which sent the pound lower versus the dollar — via Reuters:
“It’s clear that the UK’s ability to sustain large public fiscal deficits and a level of public debt without driving up interest rates and without putting sterling under significant pressure is much less than in the case of the U.S,” he said.
“If there was another significant fiscal stimulus package in the UK, then UK rating would be at risk.”
…
“Whichever government will come to office, we are expecting more stringent and more detailed plan for stabilizing public financing. But if we don’t get that after election, the UK rating is at quite significant risk.”
And as if to reassure the UK that it wasn’t the only nation facing tough fiscal times, he noted in a separate comment:
Many credit profiles of major ‘AAA’ sovereigns have been significantly weakened by the financial crisis and the subsequent recession
Although Germany has little to worry about, according to Riley, who told Reuters the country “is so far looking the most secure in terms of triple-A status.”
It is worth stressing that Riley’s comments are just that – comments, and that he has made some of these points before.
Fitch has not changed its outlook on the UK from stable to negative, but if it does – watch out for the writing on the wall.
Related links:
A short guide to the UK’s triple A rating – FT Alphaville
Implied sovereign ratings: UK ranks below China – FT Alphaville
United Kingdom – the first alarm bell rings – FT Alphaville
Sovereign stress (UK edition) – FT Alphaville