Agency downgrades sovereign debt outlook

Fitch Ratings downgraded its outlook for Britain’s sovereign debt to negative last week, but kept its AAA rating.

The ratings agency announced that Britain has a greater than 50% chance of a downgrade over the next two years, and put the Bank of England on a similar negative outlook.

In its statement on the Bank, Fitch reiterated the threats facing the British economy. With a budget deficit second only to America, Fitch says the outlook downgrade reflected the “limited fiscal space to absorb further shocks”.

The announcement appeared to have little impact on markets with the FTSE 100 remaining largely flat and sterling gaining slightly against the dollar.

“Moody’s had already put the UK on negative watch. Fitch doing something similar was unlikely to have much of an impact,” says Frances Hudson, a global thematic strategist at Standard Life Investments.

“Where you might have expected a reaction might have been in currency markets, but it hasn’t happened.”