Ratings agency Fitch has lowered the UK's government debt rating from "stable" to "negative" in wake of the Mini Budget, but maintained the UK's "AA-" investment grade.
The agency cited the "large and unfunded" fiscal package announced as part of the new government's 'Growth Plan' as a main driver for its decision, which it said could lead to a significant increase in fiscal deficits over the medium term.
Chancellor scraps plans to remove 45% income tax rate for high earners
According to Fitch, the lack of independent budget forecasts, as well as an apparent clash with the Bank of England's efforts to fight inflation had "negatively impacted financial markets' confidence and the credibility of the policy framework, a key long-standing rating strength".
On Monday (3 October), the chancellor Kwasi Kwarteng reversed the government's original plan of scrapping the 45% income tax rate for top earners, but Fitch said this was not enough to change its broader assessment.
"Although the government reversed the elimination of the 45p top rate tax,...the government's weakened political capital could further undermine the credibility of and support for the government's fiscal strategy," the agency said.
Mini Budget threatens UK credit rating
This was the second credit ratings agency this week to downgrade the UK's outlook from 'stable' to 'negative' with the S&P delivering an equally harsh review on Monday 3 October.
In Fitch's report it forecast the UK's general government deficit would top 7.8% of GDP this year and 8.8% in 2023, while general government debt would reach 109% of GDP by 2024.
This comes a few days after a similar move by the S&P, which downgraded the nation's outlook from "stable" to "negative" on the back of "additional risks" in lending.
The agency also maintained the UK's AA investment grade credit rating.
