Fitch hints at UK downgrade

The United Kingdom’s long-standing AAA credit rating is being quesitoned yet again, as Fitch Ratings has lowered its outlook on the country, suggesting a ratings downgrade may be coming.

The ratings agency affirmed its “AAA” investment grade ratings for the UK’s issuer default and country ceiling ratings. But it lowered the UK’s rating outlook to “Negative” from “Stable” and said there is a more than 50% chance of a downgrade over the next two years.

Fitch is the second credit rating agency to put the UK “negative outlook”. Moody’s made the same move in mid-February, suggesting there was a one in three chance of an actual downgrade.

“The move by Fitch could not come at a more telling time for Chancellor George Osborne as he enters into the final planning stages for next Wednesday’s budget,” writes Howard Archer, chief UK and European economist, IHS Global Insight. “Fitch’s move heaps further pressure on the Chancellor to stick to his fiscal austerity plans and to resist any temptation for unfunded giveaways.”

Archer goes on to point out that the UK appears to have already turned the corner, economically, and should benefit from the European agreement to bail out Greece. Given the Kingdom’s reliance on the Continent for trade, however, it remains susceptible to further deterioration in the eurozone.

“We believe that the UK is more likely than not to be able to retain its AAA rating, as we believe sustainable modest growth will develop from the second half of 2012 and the government will stick to its fiscal austerity plans,” he writes. “But there are undeniably appreciable risks to this outlook, some of which are outside the UK’s control.”