BBC News - UK warned again about possible credit rating downgrade

The Fitch credit ratings agency has joined Moody's and put the UK's top AAA rating on "negative outlook".

Chancellor George Osborne is preparing to deliver his Budget next week

Fitch Ratings warned on Wednesday that it could downgrade the UK in the next few years if the government does not contain the level of public debt.

The warning comes as Chancellor George Osborne puts the finishing touches to this year's Budget, which will be delivered next week.

A credit rating in theory determines a country's borrowing costs.

Fitch said that while the UK had a strong commitment to reducing the budget deficit and had an economy that was underpinned by a "high-income, diversified and flexible economy", it had "very limited fiscal space to absorb further adverse economic shocks".

"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," Fitch said.

Chief Secretary to the Treasury Danny Alexander said the move underlined the need for the government to stick to its deficit reduction plans: "This is a salutary reminder as to why Britain needs to deal with the enormous debts and deficits we inherited, why we have got to stick to those plans.

He said there would be no unfunded giveaways in next week's Budget.

'Weathervane'

Shadow chancellor Ed Balls told the BBC's Newsnight programme Fitch's announcement showed things were moving in a difficult direction for the economy.

"It shows that there's a growing worry that our economy's not growing, that unemployment's rising, that our borrowing's not coming down as George Osborne had planned.

"Now, I've said to George Osborne always, don't set your policies by the credit rating agencies, but they are a weathervane and they say the wind is blowing in a difficult direction for the British economy."

Fitch currently expects the country's public debt to stabilise at around 94% of its gross domestic product (GDP) by 2014-15.

If it does, Fitch will reaffirm the UK's rating as AAA.

It emerged this week that Mr Osborne was considering using the UK's top rating status to tap into cheap, very long-term borrowing.

One month ago, Fitch's rival agency Moody's sparked debate about the UK's rating after it said it was watching the UK's credit worthiness.

The other leading agency, Standard and Poor's, still has the UK on AAA, with no warning of a possible future downgrade.