(Alliance News) -Â Fitch Ratings late Friday affirmed the UK's AA- rating with a negative outlook, though noted that the rollout of vaccines has improved the outlook.
The negative outlook reflects the coronavirus pandemic's hit to the UK economy and the resulting deterioration in public finances, said Fitch. Fitch estimates the fiscal deficit to have widened "materially" to 16.2% in 2020 and government debt set to increase to 120% of GDP over the next few years.
"While the UK-EU Trade & Cooperation agreement should limit disruption at borders in the short term, uncertainty remains around how the new trade arrangement will work in practice and how it will affect the UK's trade with the EU over time," the ratings agency said.
More positively, though, vaccine rollout progress signals a recovery could start from the second quarter of this year.
Fitch has raised its 2021 UK growth forecast to 5.0% from 4.1%, which would follow an estimated 10.3% contraction in 2020.
"The upward revision stems from the UK-EU FTA, which represents a positive development relative to our December GEO forecast, which had assumed a WTO or 'no-deal' outcome. It also partly reflects a stronger starting position in 2020; we have revised 2020 real GDP growth to -10.3% from -11.2% on the back of stronger than expected 3Q20 real GDP growth," Fitch said.
However, 2021's rebound will be knocked somewhat by January's third nationwide lockdown.
For 2022, Fitch has revised its growth forecast to 4.7% from 3.6%, and its projections point to a level of real GDP in the fourth quarter of 2022 that is 1.1% below pre-pandemic levels.
By Lucy Heming;Â lucyheming@alliancenews.com
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