BRUSSELS (MNI) – The new UK government needs to outline a strong
and credible plan to reduce its debt and deficit in order to retain the
top rating for its sovereign debt, ratings agency Fitch Ratings said on
Wednesday.
Market concerns about countries with high debt and deficit levels
have increased in recent weeks, as has speculation that some countries
might be unable to repay their debts.
The European Commission forecasts that the UK budget deficit will
hit 12% of its GDP this year, more than any other country in the
European Union. For the EU as a whole, the Commission forecasts an
average deficit of 7.2% of GDP.
That leaves new UK Prime Minister David Cameron – whose
Conservative Party formed a coalition government with the Liberal
Democrats late Tuesday – with a key challenge to cut spending and reduce
the budget deficit and government debt.
“A strong and credible medium-term adjustment plan will be
important to underpin the UK’s AAA credit rating, particularly as
investor concerns about sovereign risk in advanced economies have
risen,” Fitch said in an e-mailed statement.
“While the coalition (between the UK Conservative Party and the
Liberal Democrats) is unchartered territory, the agreement to a
five-year term reduces the risk of a government of short duration, which
may have less incentive to focus on medium-term fiscal challenges,”
Fitch said.
“With both the Conservatives and Lib Dems committed to fiscal
consolidation, it will be important to see details of medium-term plans
set out in the forthcoming emergency budget and in the Comprehensive
Spending Review and Pre-Budget Reports,” it said.
–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com
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