Ratings agency Fitch has warned that the United Kingdom could lose its much valued AAA credit rating after Chancellor George Osborne revealed that he has failed to meet his target to bring down the country’s debt level.
Osborne told Parliament yesterday that the debt target will now not be met until 2016-17 at the earliest, a whole year later than he had initially aimed for. Fitch responded by saying that yesterday’s Autumn statement highlights the challenges faces the UK and raises the prospect that it could follow through with its earlier warning it made in March to cut the credit rating.
A cut to the UK’s credit rating would impact the government’s ability to borrowing money from investors as the cost would increase and make it riskier to lend to. The Office for Budget Responsibility, the independent body that makes economic forecasts for the government, said that the UK will miss its debt targets and the economy would contract by 0.1% this year. That figure is a stark contrast to their prevision estimation made in March that the economy would grow by 0.8%.
“We forecast gross general government debt to peak at 97% in 2015-16, approaching the upper limit of the level consistent with the UK retaining its AAA status,” Fitch said.
“The government has chosen not to chase the supplementary target by deploying additional consolidation measures over the next two years. In our view, missing the target weakens the credibility of the UK’s fiscal framework, which is one of the factors supporting the [AAA] rating.”
Asked if it would matter if Britain lost its top triple-A rating, Osborne told BBC TV: “It wouldn’t be a good thing but the credit rating is one of a number of ways in which people look at countries. Because when people look around the world and they look at countries to invest in they think Britain is a good investment. One of the things we have been able to do as a government is to keep borrowing rates very low because the world has confidence in us.”
The Pound to Euro exchange rate is currently trading at 1.2320
The Pound to US Dollar exchange rate is currently trading at 1.6114
The Pound to Australian Dollar exchange rate is currently trading at 1.5362
The Euro to US Dollar exchange rate is currently trading at 1.3076
The Euro to Pound exchange rate is currently trading at 0.8115
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