Fitch Downgrades Bank of England to 'AA+'; Outlook Stable

Wed Apr 24, 2013 12:08pm EDT

LONDON, April 24 (Fitch) Fitch Ratings has downgraded the Bank of England's (BoE) Long-term Issuer Default Rating (IDR) to 'AA+' from 'AAA' following the downgrade of the UK sovereign rating on 19 April 2012. The senior unsecured Short-term rating has been affirmed at 'F1+'. The Outlook is Stable. KEY RATING DRIVERS BoE's Long-Term IDR is directly aligned with that of the UK government. The BoE is the monetary arm of the UK sovereign and as such its credit profile is aligned with that of the sovereign government. While central banks have unlimited capacity to create base money, in practice the net present value of seigniorage, the profit from money creation, is limited and typically channelled to the government. This reinforces the close link between the central bank and the sovereign ratings. The monetary financing flexibility and the international reserve currency status of the sterling are already reflected in the UK's sovereign ratings. Fitch currently rates only the BoE's three-year-maturity USD bonds. The rating does not apply to typical central bank liabilities of the BoE, like bank notes or commercial banks' reserves that are monetary liabilities rather than rateable debt. The BoE's rating reflects its central role in the UK and international financial system. The rating is underpinned by support from the UK sovereign. The near certainty of sovereign support for the BoE derives primarily from its national strategic importance, as well as its ownership by the UK Treasury. On 19 April 2013 Fitch downgraded the UK's sovereign ratings to 'AA+' from 'AAA' (see 'Fitch Downgrades United Kingdom to 'AA+'; Outlook Stable' on www.fitchratings.com). The downgrade of the UK's sovereign ratings primarily reflects a weaker economic and fiscal outlook and hence the upward revision to Fitch's medium-term projections for UK budget deficits and government debt. Nevertheless, the UK's 'AA+' rating and Stable Outlook reflect its extremely strong credit profile. RATING SENSITIVITIES The rating is sensitive to any further changes in the UK sovereign rating. Contact: Primary Analyst Gergely Kiss Director +44 20 3530 1425 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst David Riley Managing Director +44 20 3530 1175 Committee Chairperson Ed Parker Managing Director +44 20 3530 1176 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Sovereign Rating Methodology, dated 13 August 2012 and 'Country Ceilings' dated 13 August 2012 are available at www.fitchratings.com. Applicable Criteria andALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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