Fitch Revises UK Outlook To Negative From Stable, Keeps Country At AAA

Tyler Durden's picture

In keeping with the tradition of waking up to reality with a several month delay on downgrades (if being the first to upgrade insolvent Eurozone members), here comes Fitch, to boldly go where Moody's went long ago.


As a reminder, UK consolidated debt/GDP is... oh... ~1000%

Full report:

The Outlooks on the Long-term IDRs have been revised to Negative from Stable.
The affirmation of the UK's 'AAA' ratings reflects the progress made in reducing the government's structural budget deficit and the credibility of the fiscal consolidation effort. The UK's 'AAA' rating is underpinned by a high-income, diversified and flexible economy as well as political and social stability. The UK sovereign credit profile also benefits from the macroeconomic and financing flexibility that derives from independent monetary policy and sterling's status as an international 'reserve currency'. However, the government's structural budget deficit is second in size only to the US ('AAA'/Negative) and indebtedness is significantly above the 'AAA' median, although currently broadly in line with France ('AAA'/Negative) and Germany ('AAA'/Stable).
Fitch judges the government's fiscal consolidation plans to be credible, reflecting the strong political commitment and institutional capacity. The forthcoming Budget is expected to reaffirm the government's commitment to deficit reduction as set out in the 2010 and 2011 budgets, the 2010 Spending Review, and the 2011 Autumn Statement. The adjustment is focused on permanent reductions in current spending underpinned by structural reform to public services and welfare. The front-loaded fiscal consolidation is proceeding broadly in line with the path set out by the government. The cyclically-adjusted primary deficit halved over the past two years, to 3.5% of GDP in 2011-12 from 7% of GDP in 2009-10, although the government's plans include further reductions in spending beyond the term of the current parliament.
The mix of tight fiscal and 'loose' monetary policies allowed for by the flexible monetary and exchange rate regime, including 'quantitative easing' (QE), is supportive of the necessary rebalancing of the UK economy. Although Fitch recognises that the purpose of QE is to forestall deflationary pressures and promote the flow of private credit, it has also reduced the government's cost of fiscal funding and its reliance on the market, at least over the short to medium term. Combined with an average maturity of government debt of over 14 years - around double that of its 'AAA' peers and a rating strength - on current policies the risk of a fiscal financing crisis is assessed to be negligible.
In Fitch's opinion, the credibility of the government's fiscal commitment was further enhanced by the announcement in the Autumn Statement of additional measures to ensure that the government's target of a cyclically-adjusted current budget surplus by 2016-17 and public sector net debt (excluding financial sector interventions, PSND ex) is falling in 2015-16 in response to the Office for Budget Responsibility's (OBR) substantial re-assessment of the UK's economic growth potential and growth prospects. Nonetheless, general government gross debt (GGGD) and the government's preferred measure - PSND ex - are forecast by the OBR to peak in 2014-15 at 93.9% and 78% of GDP, respectively, compared to its previous forecast of 87.2% and 70.9% in 2013-14 at the time of the March
2011 Budget and Fitch's previous formal review of the UK's sovereign ratings.
Consistent with Fitch's sovereign rating criteria and historical and international precedent, the projected peak for government indebtedness is at the limit of the level consistent with the UK retaining its 'AAA' status. With debt not expected to peak until 2014-15, three fiscal years from now, the risks and uncertainty surrounding the realisation of debt reduction by the middle of the decade are material.
The evolution of the eurozone debt crisis has significant implications for the UK in light of the substantial trade and financial linkages between the two. The easing of financial market tensions in the eurozone in recent months has diminished the risks to the UK, but in Fitch's opinion, the crisis is not resolved and could once more intensify. Fitch's current assessment is that UK banks are relatively well placed to absorb future episodes of financial market turmoil and losses on eurozone exposures without additional recourse to the UK taxpayer for capital. UK banks have strengthened their capital positions in recent years and they have reduced their exposures to the weaker eurozone economies over 2011.  In addition, the UK government has announced its intentions to reform the banking system to make future crises less frequent and costly. Both these factors should help reduce future fiscal risks. Of greater concern would be the broader economic impact of an intensification of the eurozone crisis on the UK government's ability to meet its deficit reduction targets and place the debt to GDP ratio on a downward path in 2015-16.
The revision of the rating Outlook to Negative from Stable reflects the very limited fiscal space to absorb further adverse economic shocks in light of such elevated debt levels and a potentially weaker than currently forecast economic recovery. In light of the considerable uncertainty around the economic and fiscal outlook, including the risks posed to economic recovery by ongoing financial tensions in the eurozone and against the backdrop of a still large structural budget deficit and high and rising government debt, the Negative Outlook indicates a slightly greater than 50% chance of a downgrade over a two-year horizon.
The triggers that would likely prompt a rating downgrade are as follows:
-- Discretionary fiscal easing that resulted in government debt peaking later and higher than currently forecast;
-- Adverse shocks that implied higher levels of government borrowing and debt than currently projected; and
-- A material downward revision of the assessment of the UK's medium-term growth potential.
Conversely, economic and fiscal performance in line with Fitch's baseline expectations with general government gross debt peaking at around 94% in 2014-15 would likely result in the stabilisation of the rating Outlook. In the absence of adverse shocks, Fitch does not expect to resolve the Negative Outlook until 2014. The agency's medium-term economic and fiscal projections are set out in a new Special Report on UK Public Finances, available at

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redpill's picture




TruthInSunshine's picture


(France+U.K.; the till now not much spoken of debt-laden vessels)


There's so much debt everywhere! What will the brilliant fractional reserve banking high priests/rabbis do?!!!


To Infinity & Beyond!!!

Gordo Brown sold all their gold.  There will be no liberation campaign being launched on U.K. soil by the American Freedom Fighters anytime soon. 

Zero Govt's picture


960% debt to GDP and Fitch gives Blighty a AAA

where do the staff come from, an asylum?


azzhatter's picture


LongSoupLine's picture

Fitchs' way of jumping on the "Mr. Smith bashes GS" bandwagon.  Since GS in UK is most the GDP, it makes sense.

derek_vineyard's picture

lets see........if we can repeat the bond selloff of taday for lets say 50 consecutive days 10 year bonds might be a fair investment at 10% yield.....oh, yea ....but i forget the creedit risk premium.........make that 500 consecutive days

amitmittal's picture

Though one can question a couple of points in the Fitch approach..

a. Using Gross Government Debt incl the Financial / Non Financial Debt ( I think the others are using a 500% debt ratio - refer 

b. still looking, i am relatively sure of another as Fitch almost blurted its reason for not downgrading France as Domicile...

one cannot fault them to finely point out and decimate the deterioration of public finances in frequently revised budgets a fact international commentators might overlook in the bid to catch the UK difference from the EuroClub which is a huge positive for the islands in the last few weeks. 

The forthcoming attitude of the rating agencies must also be encouraged further lest they retreat back into a shell. noting the 93.5% and 78% scores already on the Budgeted and OMBR approved GGD and PSND (Pub Sector Net Debt)



check out the chancellor's bid to get a 100 yr debt issue for the Trsry..

derek_vineyard's picture

lets see........if we can repeat the bond selloff of today for lets say 50 consecutive days 10 year bonds might be a fair investment at 10% yield.....oh, yea ....but i forget the credit risk premium.........make that 500 consecutive days

Goldilocks's picture

"What's in a name? that which we call a rose
By any other name would smell as sweet;"

valley chick's picture

how can one be a AAA with a negative rating?  I picked a bad time to try to understand the "market". :(

Herkimer Jerkimer's picture

When I get this bullshit from people, I ask them, "How many fingers do you have?"

"10!" they invaribly answer.

"No you don't!" I reply, "Watch and count with me..."


10, 9, 8, 7, 6, and 5 on the other hand is...




We've been getting told we've had 11 fingers for years.


navy62802's picture

Bullish, baby! Nothing can stop this bull now! By the time it gets done raging, all the china is going to be destroyed.

youngandhealthy's picture

- Nous Français pensent qu'il était temps
- los españoles piensan que es hora de
- noi italiani pensano che sia giunto il momento
- O Português, achamos que é sobre o tempo
- We Irish think it's about time

Acet's picture

Unfortunately that expression when translated literally to languages other than English doesn't at all mean the same.

In fact what you wrote only fully makes sense in English, might make sense in French with a small change ("Nous Francais pensent qu'ill etait du temps") and makes no sense at all in Portuguese or Spanish. (Don't really know about Italian, since I don't speak it all that well)

theMAXILOPEZpsycho's picture

In french you'll only be understood in the above sentence if you say "l'heure"

slewie the pi-rat's picture

competition in the downhill luge cliff-jumping phosphorescent paratroopers will begin as soon as out host, roddenberryFitch cuts the libor ribbon... as the queenMother looks on from her greyPouponTM corporate bentley...

Dick Darlington's picture

Wildly bullish for Gilts. The new 100 year bond will be snapped up by all the world's Mrs Watanabe's like there's no tomorrow. When Austria and FrAAnce got downgraded, bonds started to perform. Twisted world...

YesWeKahn's picture

they can't lose AAA, that would be a financial atomic bomb.

VanceEva1's picture

my classmate's sister makes $82 hourly on the internet. She has been out of work for 10 months but last month her income was $17192 just working on the internet for a few hours. Read more on this site .... 

Nassim's picture

My classmate's sister makes $82 hourly while lying on her back

xtop23's picture

 Could you and your classmate's sister please fuck off?

EmileLargo's picture

The UK is an interesting case. Back in 2008, I saw the massive drop in Sterling coming and shorted it against the Yen. That trade worked well. But I was even more negative going into 2009. The banking system was clearly bust and all the liabilities were on the Government's balance sheet. I thought the country was toast and it was a matter of a few months, may be one year. But then the Pound rallied and the economy seemed to stablilise (if you can call not totally crashing that). Since then, the government has managed to keep this Houdini act going. It is really amazing. 

The country has the wost balance sheet on the planet but it hasn't got into anything like the sort of problems one would have expected. The government has managed to keep the markets suspended in the belief that they are actually "cutting" spending. And this seems to have worked short term. 

So the question is, when does the collapse happen? I can't see how that is avoidable. 

swani's picture

When does the collapse happen? Well, that's an interesting question and there are only two possible answers; one, when the Central Bankers want the 'collapse' to happen, and two, when the Central Bankers and their puppet politicians are physically forced to step down from their positions by an angry populace.

Think about it, if Madoff was a primary dealer and could just rehypothecate the money from new vitims to pay off redemptions, when would Madoff have stopped the Ponzi? Never.

Yes, the Central Bankers will destroy America and the world along with it, but they will keep the Ponzi going until they are forced to stop. If and when the said 'collapse' happens, it will be orchestrated by the same people and they will be more than prepared to profit from it on the backs of the people, as they have for generations. 



nmewn's picture

All Hail Britannia!!!

Ag1761's picture

Not to worry, rumour has it our wonderful cancellor is considering at the upcoming budget to issue the 100 year treasury bond.

And to cap it off, it might be perpetual.

FFS, buy those Britanias with ferverous bliss

jywhy999's picture

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xtop23's picture

So next ...... Portugal, Ireland, Greece again, Portugal again, Japan, somehow Greece again, the Euro, Britain, then the US?

I wouldn't have thought it possible to keep this many plates spinning for this long.

slackrabbit's picture

And the winner on household debt is...New Zealand with only 4.1 million people.

Chances are they owe that debt to the 22 million sheep or more likely everyone else