Fitch downgrades UK rating from AAA to AA+

Fitch Ratings has downgraded the UK’s credit rating from AAA to AA+, owing to a weakened economic outlook.

The move, after Moody’s downgrade in February, came as British Chancellor George Osborne defended the government’s austerity plan.

Fitch said its downgrade primarily reflected a weaker economic and fiscal outlook.

George Osborne has said his was the “right plan” and that the economy was “healing”.

The credit ratings agency said its downgrade “primarily reflects a weaker economic and fiscal outlook” but returned its outlook to “stable”, removing the threat of further rate action in the near term.

In its twice-yearly World Economic Outlook published on Wednesday, the IMF slashed its forecast for growth to 0.7% in 2013 after saying in January that the country’s economy could expect 1% growth.

Moody’s became the first major agency to downgrade the UK’s sovereign debt rating in February, although Standard & Poor’s reaffirmed its AAA rating earlier this month.

Regarding the latest downgrade from Fitch, the UK Treasury said: “This is a stark reminder that the UK cannot simply run away from its problems, or refuse to deal with a legacy of debt built up over a decade.

“Fitch themselves say the government’s ‘continued policy commitment to reducing the underlying budget deficit’ is one of the main reasons UK debt now has a <<stable>> outlook.

“Though it is taking time, we are fixing this country’s economic problems. The deficit is down by a third (since 2010), a million and a quarter new private sector jobs have been created and the credibility we have earned means households and businesses are benefitting from near record low interest rates.”

IMF delegates visit the UK next month for annual consultations that allow it to monitor member countries and issue recommendations about economic policy.

Some IMF officials have recently raised doubts over George Osborne’s strategy.

IMF’s managing director Christine Lagarde said: “With this medium-term strong anchoring of fiscal consolidation, the pace has to be adjusted depending on the circumstances and given the weak growth that we have observed lately because of reduced demand addressed to the economy, now might be the time to consider.

“But we want to have the dialogue. I don’t think it’s fair on any of our members… to actually pass a final judgement, and the words used matter and the grammar that is applied to words matters so when we say <<may consider>>, we are opening the door.”

“But now is the dialogue,” she said, referring to the IMF’s upcoming visit to the UK.

Christine Lagarde’s comments were in line with those made by IMF chief economist Olivier Blanchard earlier in the week, when he warned that George Osborne was “playing with fire” if he continued his current strategy.

But the chancellor is sticking to his plan, saying he would defend his case when the IMF officials visit.