Ratings agency Fitch said on Thursday that they have decided to lower the outlook for the British government’s credit rating from “stable” to “negative”. This announcement came just days after rival company Standard & Poor’s took a similar decision following the latest economic measures.
“The large and unfunded fiscal package announced as part of the new government’s growth plan could lead to a significant increase in fiscal deficits over the medium term,” Fitch said.
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According to Fitch, the British economy faces a major concern as the measures promised by the British government do not match the ones being implemented by the Bank of England. While the BoE is looking to raise interest rates, Downing Street has promised a number of tax cuts.
In the past week, finance minister Kwasi Kwarteng announced tax cuts for the top earners in the United Kingdom but after severe criticism from various corners, it was not implemented. In the meantime, the sterling fell massively and at one point, the pound reaches its lowest against the US dollar.
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“Although the government reversed the elimination of the 45p top rate tax … the government’s weakened political capital could further undermine the credibility of and support for the government’s fiscal strategy,” Fitch said in their latest report according to Reuters.
Tax cuts were a major feature of newly elected Prime Minister Liz Truss’s campaign and Kwarteng has said that although it was not implemented right now, tax cuts are a possibility in the future.
Fitch forecasted that the government deficit can reach “7.8% of gross domestic product (GDP) this year and 8.8% in 2023” while the government debt can skyrocket to 109 per cent of the GDP.
