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Investing.com -- Fitch Ratings has confirmed the United Kingdom (TADAWUL:4280)’s Long-Term Foreign-Currency Issuer Default Rating (LTFC IDR) at ’AA-’ with a Stable Outlook on February 28, 2025. This affirmation is based on the UK’s high-income, large, diversified and flexible economy, credible macroeconomic policy framework, deep capital markets, and the international reserve currency status of the sterling.
The UK’s ratings also consider the nation’s high public and external debt, and a debt interest/revenue ratio that is over twice the ’AA’ peer group median. The UK’s governance, as indicated by the World Bank governance percentile ranking, aligns broadly with the peer group median.
Fitch predicts a GDP growth of 1.2% in 2025, up from 0.9% in 2024, but slower than the 1.5% forecast in the previous review in September. This slowdown is attributed to subdued consumer and business confidence, a drag from net exports, and a cooling labour market. However, growth is expected to rebound to 1.7% in 2026, due to the effects of monetary policy easing and a recovery in investment.
Fitch has also revised its assessment of the UK’s potential GDP growth to 1.4%, up from 1.2% in the second half of 2023, primarily due to an increase in migration which has boosted the working-age population.
The general government deficit is projected to narrow to 5.2% of GDP in 2025 and 4.6% in 2026, from a higher-than-expected 5.8% in 2024. The Autumn budget targeted a slower pace of fiscal consolidation, with only half of the 2.2% of GDP expenditure increases offset by tax hikes.
The UK government aims to reduce the deficit by 0.8pp from fiscal year 2026 to 2029, which will require an average real current expenditure growth of 1.3%, significantly lower than the 4.8% in fiscal year 2024 and 3.1% in fiscal year 2025.
General government debt as a percentage of GDP has increased by 15.7pp since the end of 2019 due to successive shocks. Fitch projects general government debt/GDP to rise to 104.6% in 2026, from 101.3% in 2024, which is more than double the current ’AA’ median of 47.6%.
Inflation is expected to rise to 3.3% at the end of 2025 due to higher energy costs and increases in regulated prices and employer National Insurance contributions, alongside stickier-than-expected wage growth. Inflation is then projected to fall to 2.5% at the end of 2026.
The Country Ceiling for the UK remains at ’AAA’, three notches above the LTFC IDR, reflecting strong constraints against capital or exchange controls that would prevent the private sector from converting local currency into foreign currency and transferring the proceeds to non-resident creditors to service debt payments.
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