The main reason for the decision by the international credit rating agency, which was announced in London on Friday night, is that the macroeconomic, employment and public finance data received since the beginning of the year The British economy and public finances have proven more resilient than expected in the face of the shocks caused by the coronavirus crisis.
Based on all this, Fitch revised its forecast for the UK’s GDP growth rate for this year in real terms from the 5 per cent it had forecast so far and lowered its forecast for the full-year average unemployment rate for this year from 7.3 per cent to 5.4 per cent.
Stronger economic activity will increase tax revenues, and this will contribute to reducing the general government deficit despite fiscal stimulus spending to counter the effects of the coronavirus pandemic, according to an analysis by Fitch Ratings Agency on Friday. Accordingly, the credit rating expects the UK government’s general deficit as a share of GDP to fall to 10.7 per cent this year from 12.2 per cent in 2020. Fitch stresses that at the time of the previous review of the UK’s sovereign debt rating in January, It had forecast a deficit of 16.2 per cent in the UK’s general government balance by 2020 and 12 per cent this year.
The significant pace of recovery in the British economy is also reflected in recent sectoral activity indicators. According to a joint survey by financial and economic reporting group IHS Markit and the Chartered Institute of Purchasing and Supply (CIPS), the seasonally adjusted Purchasing Managers’ Index (BMI) for the services sector, which accounts for 80 per cent of the UK’s GDP, was 62 in May, rising to 9 from 61.0 in April. BMI indicators above 50 indicate a rebound in activity in the studied sectors.
The UK service sector is improving at a pace not seen since May 1997, according to the May Barometer. According to IHS Markit model calculations, the weighted average composite body mass index for the manufacturing and services sectors, calculated together, also increased from 60.7 in April to 62.9 last month. This is the highest composite measure of activity in this sector, the two main pillars of the British economy, since the regular monthly compilation of this indicator began in January 1998.
In its analysis of the stability of the UK’s sovereign rating outlook, credit rating agency Fitch said on Friday that it expects the UK government’s debt-to-GDP ratio to peak at 110 per cent at the end of 2024, 10 percentage points lower than had been expected. time. Previous British sovereign rating review in January. This is also considered a heavy burden on government debt, as the average government debt ratio for other countries in the “AA” category is currently 46.1 percent on the Fitch rating list. However, the credit rating agency said the risks from rising UK government debt are being mitigated by very favorable financing conditions and a favorable debt profile as well.
The average maturity of the sovereign debt was 14.8 years at the end of the first quarter of this year. This is one of the longest average maturities in the field of Fitch’s sovereign debt, all of which limit interest rate and refinancing risks, according to a credit rating analysis. Fitch emphasizes that the Bank of England’s quantitative easing program and the state of the reserve currency of the pound also contribute to the strong financial resilience of the UK economy.
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