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Britain’s prized AAA credit rating under ‘significant pressure’; review in March

Britain’s prized AAA credit rating remains under “significant pressure”, the Fitch rating agency warned this week. David Riley, the head of global sovereign ratings at the agency, said Chancellor George Osborne’s admission in last month’s autumn statement that he would miss his 2016 target date for public debt to start falling had been a “negative event” for the UK.

While he stressed that a downgrade of the AAA rating was not a “decided event”, he said that Britain remained “vulnerable” to fresh economic “shocks” elsewhere in the world.

“There is increasing concern that the fiscal consolidation is happening more slowly, that the economy isn’t recovering as quickly as we had hoped,” he told BBC Radio 4’s The World at One.

“This does leave the UK quite vulnerable either to a worsening of the situation in Europe or some kind of shock coming from the United States or elsewhere.

“It does mean that its AAA rating is under quite significant pressure”.

While he said that there were still some strong underlying economic “fundamentals” to support the AAA rating, the situation could change if the Budget in March showed a further weakening of the public finances.

“If we were, following the Budget, to see that the debt is going up even higher than we currently project and is going to peak even later than we currently forecast, then that would put a lot of pressure in terms of the UK AAA rating because essentially, on a very broad measure, it would mean that the UK Government is projecting a debt level of 100% of GDP,” he said.

“And in our view that is not really consistent with the UK retaining the AAA rating”.

Any downgrade to the UK’s rating would be a huge blow to Osborne who has placed great emphasis on the importance of maintaining the AAA status.

It would also mean that the UK Government would potentially face higher borrowing costs on the international markets, adding to the pressure on the public finances.

Earlier in the week Fitch said that the United States faces a “material risk” of losing its triple-A status if there is a repeat of the wrangling seen in 2011 over raising the country's self-imposed debt ceiling.

The credit rating agency also targeted Spain and warned that the EU member will continue to face downgrade risks even if it avoids having to ask for a bailout, while Ireland could claw its way back into the single-A rating band if a deal is struck to share the burden of its banking debts.

Despite December's deal by US politicians in Washington to avoid the so-called “fiscal cliff” of spending cuts and tax hikes, Fitch's head of sovereign ratings, David Riley, said pressure on the country's rating was increasing.

Riley said the United States did not need the same kind of super-strength austerity some major developed economies are currently implementing because it was grinding out more economic growth than other high-debt nations.