Ratings agency Fitch downgrades UK credit outlook to ‘negative’

A ratings agency has downgraded the UK’s credit rating following the chancellor Kwasi Kwarteng widely criticised “mini” budget.

Fitch lowered the outlook for its credit rating for British government debt from “stable” to “negative” on Wednesday.

It came days after a similar move from rival Standard & Poor’s after Mr Kwarteng’s financial statement to MPs in the Commons on 23 September.

Meanwhile Moody’s, another ratings agency, criticised the UK government over its unfunded tax cuts at the end of last month.

In a stinging rebuke to Mr Kwarteng’s plans, Fitch said: “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 maintained its "AA-" credit rating for Britain, which is one notch lower than S&P’s.

Mr Kwarteng announced £45bn ($51bn) of unfunded tax cuts in his statement, alongside large energy subsidies and other measures aimed at boosting growth, but financial markets baulked at the extra borrowing.

Sterling fell to a record low against the US dollar and some British government bonds tumbled by the most in decades, forcing the Bank of England to step in to stabilise markets.

Fitch said the lack of independent budget forecasts, as well as an apparent clash with the BoE’s inflation-fighting strategy had "negatively impacted financial markets’ confidence and the credibility of the policy framework, a key long-standing rating strength".

On Monday, Kwarteng said he would not go ahead with part of the tax cuts - lowering income tax for the top 1 per cent of earners - which the Treasury had estimated would cost £2bn a year.

Fitch said this was not enough to change its broader assessment.

"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.

The ratings agency forecast Britain’s general government deficit would reach 7.8 per cent of gross domestic product (GDP) this year and 8.8 per cent in 2023, while general government debt would rise to 109 per cent of GDP by 2024.