Based on the the budget, Fitch has placed the United Kingdom's AAA taing on Watch Negative (for future downgrade):
The RWN reflect the latest economic and fiscal forecasts published by the Office for Budget Responsibility (OBR) that indicate that UK government debt will peak later and at a higher level than previously expected by Fitch.
GBPUSD snapped 50 pips lower but is reverting a little now - US equities shrug (just another piece of AAA collateral nearer biting the dust).
FITCH PLACES UNITED KINGDOM ON RATING WATCH NEGATIVE
Fitch Ratings-London-22 March 2013: Fitch Ratings has placed the United Kingdom's (UK) 'AAA' Long-term Issuer Default Ratings (IDR) on Rating Watch Negative (RWN) indicating a heightened probability of a downgrade in the near term. Fitch expects to complete its review of the UK's sovereign ratings by the end of April. The UK's Short-term IDR of 'F1+' and Country Ceiling of 'AAA' are unaffected.
The RWN reflect the latest economic and fiscal forecasts published by the Office for Budget Responsibility (OBR) that indicate that UK government debt will peak later and at a higher level than previously expected by Fitch. General government gross debt (GGGD) and public sector net debt are forecast by the OBR to peak in 2016-17 at 100.8% and 85.6% of GDP and only begin to decline in 2017-18. Fitch has previously stated that GGGD failing to stabilise below 100% of GDP and on a firm downward path towards 90% over the medium term would likely result in a downgrade of the UK's sovereign ratings.
KEY RATING DRIVERS
The RWN reflects the following factors:
- The upward revision by the OBR of its projections for GGGD above 100% of GDP in 2015-16 before declining as a share of national income in 2017-18. This compares with Fitch's own projections published in September 2012 that envisaged GGGD peaking at 97.3% in 2015-16.
- Since it last affirmed the UK's 'AAA' IDRs, Fitch has revised down its forecasts for economic growth in 2013 and 2014 from 1.5% and 2.0% to 0.8% and 1.8%, respectively. These forecasts were published 15 March and are broadly in line with the OBR's latest forecasts. The persistently weak performance of UK growth, in part due to European growth, has increased uncertainty around the UK's potential output and longer-term trend rate of growth with significant implications for public finances.
The UK's creditworthiness continues to be underpinned by its high-income, diversified and flexible economy - underscored by the rise in employment despite the tepid economic recovery - and the authorities' commitment to deficit reduction. The independent monetary policy framework, as well as sterling's reserve currency status, and the long average life of government debt are further rating strengths.