In response to the UK’s budget presentation, Fitch — known for taking a harder line on sovereign ratings than its rivals* — issued the following statement:

(Brian Coulton is Fitch’s Head of EMEA region Sovereign Ratings; David Riley is Global Head of Sovereign Ratings)

“The Budget statement does not materially change Fitch’s view on the health of UK public finances. In our opinion, the projected path of deficit reduction still renders the public finances vulnerable to shocks given the uncertainty over the UK’s medium-term economic prospects,” said David Riley. “The lower than expected outturn for borrowing in 2009-10 is welcome, particularly in the face of weaker than expected economic growth. There has been some restoration of government’s fiscal forecasting credibility following several years of deficit overshoots even before the recession,” said Brian Coulton.

“New measures to support the economy appear, by and large, to be funded by spending cuts elsewhere, or from bonus tax receipts, with the majority of the £11bn tax windfall devoted, appropriately, to lower borrowing,“ added Coulton. “With fiscal deficits around 0.5% to 1% lower throughout the medium term, UK debt to GDP peaks at 89.2% in 2013-14 compared with 91.6% stated previously in the PBR. While this inches in the right direction in terms of strengthening the medium term fiscal consolidation path, the deficit reduction path from 2011 is still slow, “ added Coulton.

“Public debt to GDP does not peak until 2013-14 and does not fall materially until after 2014-15. This projected path leaves the public finances vulnerable to shocks, particularly in the presence of large uncertainties over the UK economy’s medium term prospects,” concluded Coulton.

*[UPDATE]: S&P is not happy with this characterisation of Fitch, and rang us up to say as much. They contend that their ratings on various eurozone and other sovereigns are actually lower than that of Fitch, etc.

Related links:
UK most at risk of losing its triple-A rating, Fitch says – FT Alphaville
UK PBR – recipe for a downgrade? – FT Alphaville
Defending the UK’s triple A – FT Alphaville
The full faith and credit of the UK – FT Alphaville

This entry was posted by Stacy-Marie Ishmael on Wednesday, March 24th, 2010 at 16:35 and is filed under Capital markets. Tagged with fitch, Sovereign debt, sovereign ratings, sovereign risk, UK, uk budget. Edit this entry.