Was Fitch’s ‘negative outlook’ triggered by the recent increase in UK bond yields?
- 15 March 2012
As today is the 15th of March let me point out that it is the day that we should Beware the Ides of March! Although for the UK Chancellor of the Exchequer such worries maybe came early as the ratings agency Fitch joined Moody's in putting the UK's AAA credit rating on negative watch. As the news came in I have to confess I immediately wondered if the leak about issuing a 100 year Gilt (government bond) was a spoiler for this news. Governments do get told early about such developments and even if it was just before the 24 hour notice period I wonder if it leaked.
What did Fitch have to say?
Often statements from ratings agencies make some good points.
"The revision of the rating Outlook to Negative from Stable reflects the very limited fiscal space to absorb further adverse economic shocks in light of such elevated debt levels and a potentially weaker than currently forecast economic recovery."
There is nothing particularly earth shattering there as a weaker economy does present a problem for us reducing our fiscal deficit. Also Fitch goes on to make a point that the media often confuses.
"against the backdrop of a still large structural budget deficit and high and rising government debt"
Whilst we are making some forward progress with our deficit we are only reducing the rate at which our national debt grows not reducing it outright.
There were also areas where Fitch could have done a better job. For example using "structural budget deficit " as a measure is a mistake on two counts I think. Firstly it is virtually impossible to measure and secondly as it is invariably lower than the actual deficit it is used by politicians and others much more than it should be. I would not be surprised to see countries aim to fix their structural budget deficit and then discover that it has been measured wrongly.
Also I found this bit of the report slightly odd.
"sterling's status as an international ‘reserve currency'."
Is it? I am not so sure.
More from Mindful Money:
To receive our free email newsletter sign up here.
- The clearest effects of Funding for Lending have been on mortgage lending and savers
- What are the prospects of disinflation and falling prices in the UK?
- Where next for the economy of Ukraine?
- Are the UK Pound Sterling and the Euro safe havens in the currency wars?
- From 'burdened by bills' to 'socialites'. Report finds huge variety of spending habits among older households
- We are not living as long as we thought warns thinktank. Government's retirement age rise plans may be based on the wrong assumptions
- Bail on your bank shares! Buy insurance, real estate instead
- The best funds for this year's Isa with Chelsea Financial Services MD Darius McDermott
- The curious case of the Neil Woodford best sellers
- UK monetary trends still upbeat