Fitch, the credit rating company put the United Kingdom’s sovereign paper rating on negative watch. That means there are great risks to its AAA rating. It is unclear that the action would undermine borrowing costs. UK debt is still considered safe and its economy would have to get much worse to change that. Fitch’s reasoning is that:
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 UK economy is on the edge of an ongoing recession that would damage national tax receipts. The country has tried to offset those with budget cuts. It is far from certain, though, that those cuts alone will lower that nation’s indebtedness.
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