S&P sees brighter outlook for UK credit rating as budgetary risks ease

April 21 (Reuters) – Ratings agency S&P Global upgraded its outlook for Britain’s sovereign credit rating on Friday, removing the “negative” label it applied after September’s “mini-budget” under then-Prime Minister Liz Truss .

“The government’s decision to drop most of the proposed unfunded budgetary measures in September 2022 has strengthened the fiscal outlook for the UK,” S&P said.

S&P maintained its AA rating for UK government debt and now has a “stable” outlook on the rating.

Under Prime Minister Rishi Sunak, the British government reversed most of the Truss measures, which last year sent bond markets into a panic that forced the Bank of England to step in with billions of pounds of bond purchases. emergency.

Lower energy prices have improved Britain’s economic prospects, with the International Monetary Fund reviewing its forecasts last week, although tightening consumer spending from continued high inflation means the IMF still forecasts the UK economy to contract by 0.3% in 2023.

S&P said it expected British economic output to fall 0.5% this year before growing an average of 1.6% a year between 2024 and 2026.

“Near-term downside economic risks have receded. That being said, we forecast medium-term growth to be below historical averages,” he said. “The economic situation remains fragile.”

S&P also welcomed the February agreement between Britain and the European Union on trade arrangements for the British province of North Irelandwhich has remained subject to EU rules since Brexit due to its open border with Ireland.

“While the direct short-term economic effect is unlikely to be significant, the deal could eventually help improve UK-EU relations and, in turn, bode well for UK trade with the EU. EU and related investment activity,” S&P said.

Reporting by Raechel Thankam Job; Edited by Krishna Chandra Eluri

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