The UK’s credit rating has been downgraded to AA- from AA due to the budget impact of the coronavirus outbreak and Brexit uncertainty.
Credit rating agency Fitch has forecast that the UK’s economic output would drop by almost four per cent for the year.
It said it had concerns about the UK’s “fiscal loosening stance” even before the fiscal plan to tackle the crisis.
“The downgrade reflects a significant weakening of the UK’s public finances caused by the impact of the Covid-19 outbreak and a fiscal loosening stance that was instigated before the scale of the crisis became apparent,” Fitch said.
It comes as the UK’s public finances have been weekend by the Covid-19 pandemic, with the agency putting the country on a “negative outlook”.
It said it had taken into account “the deep near-term damage to the UK economy caused by the coronavirus outbreak and the lingering uncertainty regarding the post-Brexit UK-EU trade relationship”.
Chancellor Rishi Sunak unveiled a £60bn spending package to tackle the crisis, sending public finances into the red.
Fitch expected government debt to increase to nine per cent of GDP by next year, up from 2.1 per cent last year.
“The UK’s public finances were already set to weaken following the stimulus measures announced in the budget on 11 March, and they are now set to deteriorate more rapidly,” Fitch said.
The fiscal impact “will depend on the severity and length of the lockdown and the sustainability of any progress in coronavirus containment.”