(Alliance News) - Fitch Ratings affirmed the UK's AA- rating and Stable outlook late on Friday, hailing the nation's "rapid economic recovery" but warning on the effects of the Omicron variant.
Key to the UK's long-term foreign-currency issuer default rating is its fast economic recovery following a lockdown which concluded earlier this year. Fitch also hailed the UK's speedy vaccination campaign and government wage and employment help measures.
For 2021, Fitch expects the UK economy to advance 6.9%, before easing to 5.0% growth in 2022.
"High household savings and robust labour market dynamics support the strength in household spending, and investment is incentivised by the capital allowance super-deduction. The tax increases scheduled for 2022 will partly fund the planned increase in departmental spending including on health and social care, as well as on environmental policies and the government's levelling up agenda for the north of England," Fitch explained.
There are risks, however, notably the emergence of the Omicron Covid-19 variant.
In a televised, pre-recorded address on Sunday, UK Prime Minister Boris Johnson said Britain "must urgently reinforce our wall of vaccine protection" as he set a new deadline of jabbing everyone over 18 by the new year.
The UK has already set out 'Plan B' Covid-19 measures, including the use of vaccine passports in large events.
"Over the medium term, growth will fall to 2.2% in 2023, before easing towards 2.0% as the output gap closes by 2026. Fitch estimates that the UK's potential growth rate is 1.4%, 0.2pp below pre-pandemic levels," the ratings agency added.
"We consider that Brexit has reduced medium-term growth prospects and weighs on the recovery in terms of trade volumes and adding to the current labour market constraints. Trade with the EU remains significantly below pre-pandemic levels, and acute labour shortages in sectors such as transportation and agriculture are exacerbated by a more rigid immigration regime, which could become a more permanent source of pressure for the labour market. Continued uncertainty over the implementation and evolution of the Trade Cooperation Agreement with the EU, including the current discussion regarding the Northern Ireland protocol, could exacerbate the challenges to medium-term growth."
The UK and EU are to step up efforts to reach an agreement on the Northern Ireland Protocol before Christmas after negotiators last week once again failed to reach an accord.
After another week in the laboured talks on solving the issues thrown up by the Brexit border deal, UK minister David Frost on Friday said he and European Commission Vice-President Maros Sefcovic had still not reached agreement.
By Eric Cunha; ericcunha@alliancenews.com
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