Fitch upgraded its credit rating for UK government debt from “negative” to “stable” Friday, citing easing economic policy risks, while reaffirming the country’s AA- rating.
The US ratings agency’s decision will likely be well-received by British Prime Minister Rishi Sunak, whose Conservatives badly trail the main opposition Labour party in polls ahead of local elections in May.
Fitch said in a statement that economic policy risks had eased in the United Kingdom since it issued its “negative” outlook in October 2022, during the brief premiership of former Conservative prime minister Liz Truss.
The Truss government’s disastrous tax-slashing mini-budget sparked economic and political turmoil and led to her departure from the top job in British politics after just 49 days in office.
“We expect general government debt/GDP to be broadly stable from end-2025,” Fitch said, adding it expects the UK’s government deficit to fall from 5.8 percent of GDP last year to 3.7 percent in 2025.
Fitch also welcomed the recent fall in UK annual consumer inflation, which has plummeted from a peak of 11.2 percent in October 2022 to 3.4 percent in February this year.
While this marks significant progress, UK inflation nevertheless remains stuck firmly above the Bank of England’s two percent target.
“Inflation had decelerated markedly due to lower energy prices, but core and services inflation remains relatively high, partly reflecting a still tight labour market,” Fitch said.
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