January 15, 2013 / 5:01 PM / in 5 years

Fitch warns UK's triple-A rating hanging by thread

LONDON, Jan 15 (Reuters) - The risks of Britain losing its triple-A status are "clearly increasing," rating firm Fitch said on Tuesday, warning it could pull the trigger if the country's budget in March shows debt levels continue to rise.

All three major rating firms currently class Britain a top-rated triple-A, but Tony Stringer, one of Fitch's top sovereign experts, said the country's debt levels had reached crucially high levels.

"It (downgrade) is not a done deal, but the risks are clearly increasing for the UK," Stringer said in an interview with Reuters Insider television.

"I think we will be watching the budget very closely to see whether forecasts for peak debt and the trajectory for debt coming down are still consistent (with reducing debt). If those forecasts worsen in our view, I would suspect that is going to lead to a negative outcome."

Britain's annual budget is due to be announced on March 20. Its economy grew at just under 1 percent in the third quarter of 2012 but is expected to have slowed again in the fourth quarter, adding to pressure on its finances.

The country's Conservative-led coalition government had originally staked its reputation on plans to virtually eliminate a budget deficit that was at a record 11.2 percent of gross domestic product when it came to power in mid-2010.

However, progress has been slow due to a faltering domestic economy and weak demand in the euro zone, Britain's biggest trading partner, forcing the government to admit that it will take longer than planned to meet its austerity goals.

Fitch first said it could downgrade Britain in March last year. S&P and Moody's have also warned they could lower their ratings on Britain.

While losing the top notch rating would be a political blow to the UK government, the market impact on Britain's borrowing costs would be less certain.

The United States and France both lost their triple-A ratings after the financial crisis and later saw their bond yields plumb fresh record lows.

Germany and Canada are the only other major economies to still be rated triple-A by all three leading ratings agencies.

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