Fitch fires a warning shot
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David Riley, Fitch’s co-head of global sovereign ratings, has appeared to warn the government over any increase in stimulus measures.
In a statement Riley cast doubt over the Britain’s ability to sustain a large fiscal deficit and a high level of public debt “without driving up interest rates and without putting sterling under significant pressure”.
Under threat is Britain’s top AAA credit rating, which it shares with only a select group of countries including America, Germany and France.
The stark warning serves to underline that Britain has been more severely hit by the crisis than other major world economies. As proof of this Alistair Darling, the chancellor of the exchequer, announced a further £39.2 billion injection of taxpayers’ money to prop up ailing banks earlier this month.
“Under threat is Britain’s top AAA credit rating, which it shares with only a select group of countries”
Already the government deficit has more than doubled to 7.1% of GDP in the 2008/2009 financial year, far ahead of the 3%“excessive deficit” value set under the Maastricht Treaty. Current International Monetary Fund estimates suggest that this will grow to 11.6% of GDP over 2009.
Riley’s statement also gives further credence to suggestions that the Bank of England’s Monetary Policy Committee decision to pump an extra £25 billion into the economy at its November meeting will be its final push.
Perhaps it is unsurprising then that Fitch would take this moment to once again remind the government of its responsibilities to start reigning in spending and formulate plans to exit stimulus measures. One thing that is certain, however, is that without the safety net of further capital injections the market is going to have to start fending for itself.
Tomas Hirst is a Senior staff writer on Fund Strategy
