The U.K.’s economy has looked resilient despite predictions of doom and gloom following Brexit, particularly as the Office of Budget Responsibility (OBR) recently updated its growth forecast for 2017 to 2% from 1.4% last fall.
But Fitch Ratings still sees long-term challenges ahead in terms of reducing public debt, and the ratings agency has taken this factor into account in giving the U.K. a negative outlook on its sovereign ‘AA’ rating. The firm also has a dimmer view of the growth it anticipates coming from the U.K. this year and next—1.5% and 1.3%, respectively—as it expects weaker foreign investment stemming from lingering Brexit jitters.
“Currently we assume that the government debt-to-GDP ratio will peak in 2018, but that would still leave the U.K. with one of the highest public debt ratios among highly rated ('AAA' and 'AA') sovereigns,” Fitch analysts said.
Also, the OBR anticipates that general government gross debt as a share of GDP will stay mostly at the same level for the next two years and start dropping in fiscal 2019/2020. “This underlines the scale of the challenge of putting the debt ratio on a downward path,” Fitch said.
– Nicholas Stern, senior editor