Fitch downgrades UK to ‘AA’-negative outlook

Fitch rating agency has downgraded the United Kingdom AA-negative outlook.

The rating agency said the downgrade reflects a significant weakening of the UK’s public finances caused by the impact of the COVID-19 outbreak and a fiscal loosening stance that was instigated before the scale of the crisis became apparent.

The downgrade also reflects the deep near-term damage to the UK economy caused by the coronavirus outbreak and the lingering uncertainty regarding the post-Brexit UK-EU trade relationship.

The commensurate and necessary policy response to contain the COVID-19 outbreak will result in a sharp rise in general government deficit and debt ratios, leading to an acceleration in the deterioration of public finance metrics over the medium term.

The Negative Outlook it further said, “reflects our view that reversing the deterioration in the fiscal metrics beyond 2020 will not be a political priority for the UK government. Moreover, uncertainty around the future trade relationship with the EU could constrain the strength of the post-crisis economic recovery.

“The coronavirus outbreak has inflicted an unprecedented shock on financial markets and economic activity, with policymakers struggling to avert a longer-lasting downturn. In common with other advanced countries, the UK has shut down parts of its economy to slow the spread of the disease, which will cause a deep contraction centred on 2Q20. On 23 March, Prime Minister Johnson announced more drastic measures to contain the spread of COVID-19, including the closure of all non-essential shops and a ban of public gatherings of more than two people.

“Under our much-revised baseline forecast that reflects the lockdown measures across the UK, we now estimate that GDP could fall by close to 4 per cent in 2020. In the baseline, we assume that containment measures can be unwound in 2H20, allowing for recovery in sequential growth and the broader economy, leading to a sharp recovery in growth to around 3per cent in 2021.