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Fitch Warns UK Likelihood It Loses AAA Rating Has Increased

Tyler Durden's picture


One-by-one, the highest quality collateral in the world (according to ratings that is) is disappearing. To wit, Fitch warns that a downgrade of the UK's AAA rating is increasingly likely: "weaker than expected growth and fiscal outturns in 2012 have increased pressure on the UK's 'AAA' rating, which has been on Negative Outlook since March 2012." The Negative Outlook on the UK rating reflects the very limited fiscal space, at the 'AAA' level, to absorb further adverse economic shocks in light of the UK's elevated debt levels and uncertain growth outlook. Global economic headwinds, including those emanating from the on-going eurozone crisis, have compounded the drag on UK growth from private sector deleveraging and fiscal consolidation as well as from depressed business and consumer confidence, weak investment, and constrained credit growth. But no mention of unlimited QE?


Via Fitch: -London-28 September 2012: Fitch Ratings has affirmed the United Kingdom's (UK) sovereign ratings as follows:
--Long-term foreign currency Issuer Default Rating (IDR) affirmed at 'AAA'
--Long-term local currency IDR affirmed at 'AAA'
--Country Ceiling affirmed at 'AAA'
--Short-term foreign currency rating affirmed at 'F1+'
The Outlooks on the Long-term IDRs have been maintained at Negative.
However, weaker than expected growth and fiscal outturns in 2012 have increased pressure on the UK's 'AAA' rating, which has been on Negative Outlook since March 2012. With a structural budget deficit second in size within the 'AAA'category only to the US ('AAA'/Negative), and general government gross debt (GGGD) approaching 100% of GDP in 2015-16 under Fitch's revised baseline estimates - the upper limit of the level consistent with the UK retaining its 'AAA' status - the likelihood of a downgrade has therefore increased.
Global economic headwinds, including those emanating from the on-going eurozone crisis, have compounded the drag on UK growth from private sector deleveraging and fiscal consolidation as well as from depressed business and consumer confidence, weak investment, and constrained credit growth. Fitch now expects the economy to contract by 0.3% in 2012 compared to an expectation of growth of 0.8% when the UK sovereign rating was last formally reviewed in March 2012. The weaker than anticipated economy is reflected in lower corporate tax returns and higher public sector net borrowing, which in the five months to August was GBP59bn compared to GBP48.4bn over the same period in 2011. In light of these developments, Fitch has updated and revised its medium-term fiscal projections for the UK.
Fitch expects only a weak recovery beginning in 2013 and output is not expected to surpass its 2007 pre-crisis peak until 2014. However, the relative resilience of the labour market underscores the continuing uncertainty regarding the medium-term growth potential of the UK economy. Fitch has not revised its previous judgement that the potential annual growth rate of the UK economy is around 2.25% and this assumption is reflected in Fitch's latest economic and fiscal projections published today.
Fitch projects that GGGD and the government's preferred measure - public sector net debt excluding financial interventions (PSND ex) - will peak in 2015-16 at over 97% and 80% of GDP, respectively, before registering a decline in 2016-17. This is one year later than the authorities' supplementary target of having PSND ex decline as a share of GDP in 2015-16, and compares to a previous Fitch projected GGGD peak of about 94% of GDP in March 2012. Fitch's projections assume that the commitment by the Chancellor in last year's Autumn Statement of an additional GBP8bn and GBP15bn of deficit-reduction measures in 2015-16 and 2016-17 respectively will be implemented, though they fall outside the term of the current government and have yet to be specified. It is also assumed that the government implements its consolidation programme as laid out in the 2012 Budget. Fitch's projections are consistent with the government continuing to target a cyclically adjusted current balance by the end of the rolling, five-year forecast period.
The Negative Outlook on the UK rating reflects the very limited fiscal space, at the 'AAA' level, to absorb further adverse economic shocks in light of the UK's elevated debt levels and uncertain growth outlook.
A downgrade of the UK's 'AAA' sovereign rating would likely be triggered by the following:
-- General government gross debt failing to stabilise below 100% of GDP and on a firm downward path towards 90% of GDP over the medium-term.
-- Discretionary fiscal easing that resulted in government debt peaking later and higher than currently forecast.
-- A material downward revision of the assessment of the UK's medium-term growth potential.

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Fri, 09/28/2012 - 13:27 | 2839413 RSloane
RSloane's picture

The UK had a AAA rating? They've been in a recession for how long?

Fri, 09/28/2012 - 13:38 | 2839453 Silver Bug
Silver Bug's picture

Should be rated junk, along with a lot more countries.



Fri, 09/28/2012 - 14:36 | 2839668 Dalago
Dalago's picture

These rating agencies get paid by the entities they analyze!  Its a conflict of interest!  Fuck Fitch, fuck S&P and fuck Moody's.  They're always late to the show and only service the issuers they analyze.


Egan-Jones is the only honest one because they're investor supported rather than issuer-of-debt supported.

Fri, 09/28/2012 - 13:38 | 2839455 Ying-Yang
Ying-Yang's picture

Does fitch like to downgrade after the close for the weekend?

Fri, 09/28/2012 - 13:39 | 2839456 rfaze
rfaze's picture

This just out from Fitch:

Increased chances of fire on Hindenburg may possilbe, outside chance, most likely never happen, don't worry about it, result in increase in insurance costs.  

Fri, 09/28/2012 - 13:41 | 2839465 slaughterer
slaughterer's picture

Potter got the bad news under control.



I want my 2 ozs at the closing bell.

Fri, 09/28/2012 - 13:43 | 2839473 Yen Cross
Yen Cross's picture

Margaret Thatcher comes to mind.?

Fri, 09/28/2012 - 13:48 | 2839476 Dr. Engali
Dr. Engali's picture

Most developed countries with a printer have the luxury of a AAA rating even if defaulting by inflation is still technically a default.

Fri, 09/28/2012 - 13:49 | 2839488 spentCartridge
spentCartridge's picture

Since about 1979.

Fri, 09/28/2012 - 16:01 | 2839904 Solon the Destroyer
Solon the Destroyer's picture

I expect this downgrade is coming because they wanted it to.

Help devalue the pound through the selling of pound-based collateral and thus aid exports.  The AAA was probably too difficult of a cross for that economy to bear.

Fri, 09/28/2012 - 16:42 | 2840021 Boeing Boy
Boeing Boy's picture

We don't fix our economic stats quite so obviously as you American losers....

Fri, 09/28/2012 - 19:01 | 2840385 AttilaTheHun
AttilaTheHun's picture

The UK had a AAA rating? They've been in a recession for how long?


Since about the time of The Crusades in the 14thCentury.


Fri, 09/28/2012 - 13:28 | 2839415 Jlmadyson
Jlmadyson's picture

Less talk, more action at this point Fitch.

Been waving these downgrade warnings for far too long with no action.

Fri, 09/28/2012 - 13:28 | 2839417 Bolweevil
Bolweevil's picture

This makes for wonderful six-nations rugby. vive Chabal!

Fri, 09/28/2012 - 13:29 | 2839422 magpie
magpie's picture

Silly me, i thought it was time again for an US or German downgrade threat.

Fri, 09/28/2012 - 13:30 | 2839423 VonManstein
VonManstein's picture

London is a vibrant city from hell

Fri, 09/28/2012 - 16:45 | 2840037 Boeing Boy
Boeing Boy's picture


Fri, 09/28/2012 - 13:30 | 2839424 LongSoupLine
LongSoupLine's picture

How the fuck does the UK have any "A" within their rating at all?!

Fri, 09/28/2012 - 13:32 | 2839428 Skateboarder
Skateboarder's picture

Cuz that's where the BAR's at.

Fri, 09/28/2012 - 13:48 | 2839460 Ying-Yang
Ying-Yang's picture

Royalty hates to get caught with their pants down or their tops off.... /s

You know you looked... and now you are on the MI6 no fly list

Fri, 09/28/2012 - 16:44 | 2840028 Boeing Boy
Boeing Boy's picture

You have food stamps for the equiv of 70% of our population, like comparing a first world country with a developing one.   Good luck losers.

Fri, 09/28/2012 - 17:33 | 2840165 goldfreak
goldfreak's picture

In other news Fitch warns Kirstie Alley and Dom Deluise may be slightly overweight

Fri, 09/28/2012 - 13:31 | 2839425 LawsofPhysics
LawsofPhysics's picture

Que up, you fucking U.K. sheep.  Race you to the bottom!

Fri, 09/28/2012 - 16:45 | 2840032 Boeing Boy
Boeing Boy's picture

Queue loser.

Fri, 09/28/2012 - 13:32 | 2839427 J 457
J 457's picture

In other news DNDN?

Fri, 09/28/2012 - 13:35 | 2839430 JustObserving
JustObserving's picture

Why does UK have a AAA rating in the first place? Its total debt to GDP is astronomical.  Apart from naked pictures of royalty, what does it produce? 

Fri, 09/28/2012 - 13:36 | 2839444 Skateboarder
Skateboarder's picture


Fri, 09/28/2012 - 13:42 | 2839469 No Euros please...
No Euros please we're British's picture

I think you'll find that a lot of this astronomical debt is resident with the banks. Banks that are mainly foreign subsidiaries resident in London to take full advantage of the lax (zero) rules on rehypothecation. When the SHTF you may find all these astronomical debts being relocated to their parent countries. Maybe a little like the recent JPM losses?

And of course as as been mention we can PRINT, BABY, PRINT.

Fri, 09/28/2012 - 14:08 | 2839551 timbo_em
timbo_em's picture

If the S really HFT there might be the chance that a lot of foreign banks simply walk away from their English subsidiary. Crédit Agricole did this once in Argentina and either they sell their Greek branch pretty soon before the Grexit happens or they will do it again.

Fri, 09/28/2012 - 14:00 | 2839522 timbo_em
timbo_em's picture

Every summer they export large quantities of drunk chicks to all destinations in the southern mediterranean sea and the Canary Islands.

Fri, 09/28/2012 - 14:02 | 2839528 Kalevi
Kalevi's picture

I rated those pic's 34B.

I don't rate male royals, can't figure any parameters for their use.

Fri, 09/28/2012 - 14:14 | 2839578 giovanni_f
giovanni_f's picture

Our beloved island-of-the-apes or Zimbabwe-in-the-sea, as it is called from time to time, produces colonial legacies all over the planet, artificial nations in NE, Africa, Asia, terrible food, and a disrespect for law if it is to protect individuals and not banks (Assange). It is unparalleled in producing "financial innovations", e.g. re-hypothecation schemes so that MFG clients can be corzined legally. And it produces lectures, mainly to the continent, about almost everything. And it produces assholes like Tony Blair. It is second to none when it comes to produce hideouts for russian mafia oligarchs, or a platform for the anti-assad jihadists operating under the label "syrian human rights watch". You see, it produces a lot.

Fri, 09/28/2012 - 16:48 | 2840043 Boeing Boy
Boeing Boy's picture

I can think of 17 trillion reasons...

Fri, 09/28/2012 - 19:07 | 2840395 AttilaTheHun
AttilaTheHun's picture

It's a major exporter of jobs and a world leader in importing cheap labour.  It produces the largest European mountain of Quantitative Dis-easing !

Fri, 09/28/2012 - 13:33 | 2839431 youngman
youngman's picture

retail sales down..unemployment up...economy is blood and kidney pie.....yeah it should be downgraded....years ago...but they can print just like the USA...

Fri, 09/28/2012 - 13:33 | 2839433 No Euros please...
No Euros please we're British's picture

Guess that means they'll be raising the state pension retirement age from 68 to 80. Oh, of course not for public sector workers who will continue to be eligible for full index linked gold plated pensions from the age of 50.

Fri, 09/28/2012 - 14:12 | 2839554 Floodmaster
Floodmaster's picture

Public sector is 53% of the economy, the rest is imperialist plunder and banksterism, the bbc should do a documentary on that.

Fri, 09/28/2012 - 13:34 | 2839439 Lost Wages
Lost Wages's picture

Isn't the UK just one big rehypothecated junk bond?

Fri, 09/28/2012 - 13:36 | 2839443 l1b3rty
l1b3rty's picture

Has all that QE just not done the trick!??? Dammit! 



Fri, 09/28/2012 - 13:36 | 2839446 PUD
PUD's picture

EU's Junker is comforted...(ran squawk)

Fri, 09/28/2012 - 13:37 | 2839449 Bam_Man
Bam_Man's picture

I can't believe that they are still rated triple A. They've been financing their huge deficits by printing money like mad for almost five years and they are still rated triple A? What a joke!

Any country that resorts to financing itself through the use of a printing press has no business being rated "triple A".

Fri, 09/28/2012 - 13:42 | 2839461 CitizenPete
CitizenPete's picture

New Federal Reserve Working Papers posted online, for those of you that like propaganda from a bankers world view.



Fri, 09/28/2012 - 13:41 | 2839463 Meesohaawnee
Meesohaawnee's picture

i have an idea.. just lower them to negative triple zzz.. then well get the red day cleanup crew to make things pretty like the equity markets today.. problem solved. its so simple why make it so complicated?

Fri, 09/28/2012 - 13:42 | 2839470 Yen Cross
Yen Cross's picture

 Great! I'm playing intraday "cable shorts". That trade is overbought! The M/E's , SNB, and other small CB's have been rinse washing through the £ for months !

Fri, 09/28/2012 - 13:42 | 2839471 youngman
youngman's picture

What are all of those new europeans that bought flats in London going to do now...it was a safe haven they thought.....

Fri, 09/28/2012 - 13:43 | 2839474 Calidreaming
Calidreaming's picture

This is Bullish right?


Fri, 09/28/2012 - 13:45 | 2839478 PUD
PUD's picture

Corn limit up, oil rippin again, global manufacturing in depression, dow green...Junker is comforted and the dumpsters are secure

Fri, 09/28/2012 - 13:50 | 2839493 Meesohaawnee
Meesohaawnee's picture

gee.. im wall street and i just cant understand for the life of me why retail doesnt want "in" in my rigged market. see today prime example. Keep scaring em away

Fri, 09/28/2012 - 13:51 | 2839496 J 457
J 457's picture

When will S&P downgrade USA again.  This could be the black swan.  Is it not about that time?  Has ANY fiscal progress been made- nope.  Only deterioration since last downgrade.

Fri, 09/28/2012 - 13:53 | 2839506 Tsar Pointless
Tsar Pointless's picture

Is this little nugget or the Spanish bank "stress" test news the reason for the equity spike here on our side of the pond?

Or both?

Or, is it none of the above, and merely the usual end-of-month/post-European close/Friday afternoon ramp job?

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