Fitch’s backing for country’s credit rating

Britain’s top-notch credit rating looks increasingly secure thanks to the Government’s commitment to deficit reduction and a recovering banking sector, ratings agency Fitch said yesterday.

However, the organisation said there was a risk that inflationary pressures could spur a sharper-than-expected rise in interest rates which might hurt the economy.

Maria Malas-Mroueh, director in Fitch’s Sovereign team, said: “The strong budgetary consolidation effort and declining fiscal risks arising from the UK financial sector support the Stable Outlook on the UK’s ‘AAA’ ratings.”

Fitch said the government’s deficit reduction plan was credible and it expected the March 23 budget to reaffirm the government’s commitment to fiscal tightening.

However, it noted that uncertainty over how much spare capacity remained in the economy as well as the pace of economic recovery had increased the potential for monetary and fiscal policy errors. Inflation has been above the Government’s target rate of two per cent since December 2009 and Fitch said it expected inflation to average four per cent in 2011.