We have argued for years that being Triple-A rated is not what is used to be. Still, when countries lose their highly prized “AAA” rating it is worth a real look. On Friday we have seen now that Fitch Ratings has downgraded the United Kingdom from “AAA” to “AA+” in a call ahead of the weekend. This is not the first downgrade that the United Kingdom has seen this year as you will see.

Fitch based its downgrade based upon a weaker economic and fiscal outlook and the upward revision to Fitch’s medium-term projections for budget deficits and government debt. The downgrade was also based in part to Fitch’s forecasts that general government gross debt in England will peak at 101% of GDP in 2015 to 2016. Fitch had previously said that failure to stabilize the U.K. debt below 100% of GDP and to place it on a firm downward path towards 90% of GDP over the medium term would likely trigger a rating downgrade. Now we have it.

Another takeaway is that Fitch revised its forecast for GDP in 2013 and 2014 down to 0.8% from 1.5% for 2013 and down to 1.8% from 2.0% for 2014. An interesting point was made here on the debt maturities: The long average maturity of public debt of 15 years is the longest of any high-grade sovereign that is denominated entirely in local currency and low interest service burden implies a higher level of debt tolerance than many high-grade peers.

We also see that the new Outlook is considered “Stable” and Fitch affirmed the UK’s Short-term foreign currency rating at ‘F1+’ and the Country Ceiling at ‘AAA’. It was stated that the “Stable Outlook” indicates that there is now less than a 50% chance of a change in the U.K. sovereign ratings over the next two years.

Read Also: Moody’s Downgrades U.K. From Triple-A (Feb. 22, 2013)

Fitch said, “Despite the UK’s strong fiscal financing flexibility underpinned by its own currency with reserve currency status and the long average maturity of public debt, the fiscal space to absorb further adverse economic and financial shocks is no longer consistent with a ‘AAA’ rating.”

FULL FITCH NOTE

Wilbur Ross described the loss of a “AAA” rating better than anyone else ever has. He equated a “AAA” rating to virginity, being easy to lose and very difficult to get back.

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