A top US credit rating agency has lowered its outlook for British government debt from “stable” to “negative” amid the fallout from Prime Minister Liz Truss’s mini-budget fiasco, media reports said.
The firm Fitch announced that Chancellor Kwasi Kwarteng’s “unfunded fiscal package” could lead to “significant increase in fiscal deficits over the medium term”, Daily Mail reported.
It followed a similar move by rival Standard & Poor’s (S&P’s) a few days ago, however Fitch maintained its ‘AA-‘ credit rating for the UK, which is one level lower than S&P’s, citing the government’s “weakened political capital”.
It comes after Kwarteng’s mini-budget announcement on September 23 promised 45 billion pounds in tax cuts, which spooked markets and sent the pound plummeting against the dollar.
The Bank of England (BoE) was forced to step in and purchase up to 65 billion pounds in government debt in a bid to shore up confidence and prevent pension funds collapsing.
Following backlash from voters and MPs, Ms Truss and Kwarteng were forced into a humiliating U-turn, ditching plans to abolish the 45p top rate of tax. However Fitch said this was not enough to allay concerns, Daily Mail reported.
“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 in a statement.
“We consider that statements by the Chancellor hinting at the possibility of additional tax cuts and the likely modification of fiscal rules legislated in January reduce the predictability of fiscal policy.”
It added: “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.”