March 20, 2014 / 3:16 PM / 4 years ago

Fitch: UK Budget Confirms Assumptions, Fiscal Challenge Remains

(The following statement was released by the rating agency) LONDON, March 20 (Fitch) The UK budget and latest Office for Budget Responsibility projections are in line with Fitch Ratings' view that economic growth will improve in the near term and that the government's overall fiscal stance will remain broadly unchanged. The UK's fiscal challenge remains large relative to most high-grade sovereigns. Most of the remaining consolidation will fall to the next parliament, making it somewhat less certain. According to OBR forecasts, the 2014 Budget is fiscally neutral and the projections for public borrowing and debt are marginally better than forecast in December's Autumn Statement. The OBR now expects gross general government debt to peak at 93.1% of GDP in 2015-2016, 1.6pp lower than in December. However, the government's "supplementary debt target" of a falling public sector net debt ratio in 2015-2016 is still forecast to be missed by a year despite the better growth outlook and slightly lower deficits and debt over the period. The government is reviewing the current fiscal policy framework, as announced last December. This will not be concluded until this year's Autumn Statement, but the Budget document emphasises long-term public debt dynamics, a key rating factor in our view. The public debt ratio will need to be lower and steadily declining before any upgrade to 'AAA', if warranted by other credit factors (see "'AAA' Sovereign Characteristics and Public Debt Ratios", available at This is unlikely in the near term, which is reflected in the Stable Outlook. The UK's public debt dynamics remain sensitive to shocks. The OBR's economic outlook remains similar to our baseline. The OBR revised up its 2014 growth forecast to 2.7% from 2.4%. We also recently revised up our 2014 forecast, to 2.5% from 2.3%, in light of a more balanced growth profile, especially the acceleration of business investment. The economic policy announcements made by the Chancellor on Wednesday do not materially alter our growth expectations. We remain cautious about further acceleration of growth. First, fiscal consolidation will continue over the coming years, as confirmed by the Chancellor yesterday. Second, consumption growth is likely to follow real disposable income changes over the longer run, as UK household indebtedness remains one of the highest among major advanced economies, constraining future falls in the savings rate. Our affirmation of the UK's 'AA+' ratings with a Stable Outlook on 18 December 2013 reflected the strengthening economic outlook and credible fiscal strategy. Contact: Douglas Renwick Senior Director Sovereigns +44 20 3530 1045 Fitch Ratings Limited 30 North Colonnade London E14 5GN Gergely Kiss Director Sovereigns +44 20 3530 1425 Mark Brown Senior Director Fitch Wire +44 20 3530 1588 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email:; Hannah Huntly, London, Tel: +44 20 3530 1153, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research: United Kingdom here ‘AAA’ Sovereign Characteristics and Public Debt Ratios here ALL 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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