By Stephen Nakrosis

 

Fitch Ratings on Wednesday lowered its outlooks on the United Kingdom and the Bank of England to negative.

Both entities had previously had a stable outlook, Fitch said.

Fitch said its outlook for the U.K. reflects the "large and unfunded fiscal package announced as part of the new government's growth plan," which could "lead to a significant increase in fiscal deficits over the medium term."

Fitch said the U.K.'s general government deficit will be 7.8% of GDP in 2022 and increase to 8.8% in 2023, unless there are compensatory measures.

"The change in fiscal trajectory will push general government debt to 109% of GDP by 2024 from an estimated 101% in 2022, reflecting both higher primary deficits and a weaker growth outlook," Fitch said. The agency also pointed out increased government bond yields in recent months, "reflecting higher interest rates and uncertainty regarding the fiscal strategy."

Fitch said it sees average inflation increasing to 8.9% this year before gradually declining to 4% in 2024.

Fitch said the Bank of England is the monetary arm of the UK sovereign, "and as such its credit profile is aligned with that of the sovereign government."

Fitch affirmed the U.K.'s long-term foreign-currency issuer default rating at 'AA-. It also affirmed the BoE's IDR at AA-.

Last month, S&P Global Ratings lowered its outlook on the U.K. to negative from stable, reflecting what it said were "rising risks to the U.K.'s fiscal position over the next two years."

 

Write to Stephen Nakrosis at stephen.nakrosis@wsj.com

 

(END) Dow Jones Newswires

October 05, 2022 17:51 ET (21:51 GMT)

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