* Fitch cuts UK sovereign rating to AA-
* Single-notch downgrade reflects likely jump in debt
* Ratings agency says government stimulus necessary
* But debt likely to peak at above 100% of GDP
* Fitch leaves negative outlook on UK rating
(Adds details, background)
By William Schomberg and Aditi Sebastian
LONDON/BENGALURU, India, March 27 (Reuters) - Ratings agency
Fitch cut Britain's sovereign debt rating on Friday, saying the
country's debt levels would jump as the government ramped up its
spending to offset the near shutdown of the economy in the face
of coronavirus.
Fitch downgraded the country by one notch to 'AA-' - the
same level as its rating for Belgium and the Czech Republic -
from 'AA' and said a further cut could follow as it kept the
rating on negative outlook.
"The downgrade reflects a significant weakening of the UK's
public finances caused by the impact of the COVID-19 outbreak
and a fiscal loosening stance that was instigated before the
scale of the crisis became apparent," Fitch said.
"The downgrade also reflects the deep near-term damage to
the UK economy caused by the coronavirus outbreak and the
lingering uncertainty regarding the post-Brexit UK-EU trade
relationship."
Facing what some economists say could be Britain's deepest
recession in a century after the government ordered many
businesses to close to slow the spread of coronavirus, finance
minister Rishi Sunak has announced a string of stimulus measures
to try to prevent a surge in unemployment.
Central to his plan is a commitment for the state to pay 80%
of the wages of workers who are temporarily laid off.
The Bank of England, like other central banks around the
world, has also jumped into action, expanding its bond-buying
programme by a record 200 billion pounds and cutting its main
interest rate to a record-low 0.1%.
Fitch said the measures were necessary to cushion the
economy but it now expected Britain's public debt, as a share of
gross domestic product, would rise to 94% in 2020 and 98% in
2021, from 84.5% in 2019.
"Over the medium term, we expect public debt to peak at well
above 100% of GDP beyond 2025 assuming a gradual reduction in
fiscal deficits and trend GDP growth of 1.6%," it said.
Fitch said the coronavirus shutdown was likely to mean
Britain's economy shrinks by nearly 4% in 2020, assuming that
the drastic containment measures can be relaxed in the second
half of the year, leading to a 3% bounce in growth in 2021.
"However, with so much depending on the extent and duration
of the coronavirus outbreak, there is material downside risk to
these economic forecasts," it said.
Doubts about Britain's future trading ties with the European
Union posed a further risk, Fitch said.
Britain's former top-notch AAA rating has been cut steadily
over the past seven years as the country struggled to bring down
its debt levels that doubled after the global financial crisis
and then voted to leave the European Union, weighing on its
long-term growth prospects in the eyes of the ratings agencies.
(Reporting by William Schomberg in London and Aditi Sebastian
in Bengaluru; Editing by Sriraj Kalluvila and Daniel Wallis)