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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.

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

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

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.

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Italy and Spain debts have both been downgraded by the Fitch credit rating agency.

Italy’s rating was cut from AA- to A+ by Fitch, following agency Moody’s downgrade earlier this week.

Fitch cited the “intensification” of the eurozone debt crisis that “constitutes a significant financial and economic shock which has weakened Italy’s sovereign risk profile”.

Fitch also cut Spain’s rating from AA+ to AA-.

The credit rating agency raised concerns about the strength of Italian banks, particularly in light of the current debt crisis.

Fitch talked of the “small but no longer negligible risk that a further worsening of the eurozone debt crisis and volatility in the value of Italian government bonds will further erode confidence in the banking system”.

Fitch also said a “vicious cycle” could emerge where a growing lack of confidence in Italian banks could knock confidence in government debt, which could in turn undermine the banks further.

Regarding Spain, Fitch also cited the deepening debt crisis, and raised questions about the country’s ability to cut its debt levels quickly – and its growth prospects.

The Spain’s high underlying budget deficit and its fragile economic recovery made the country “especially vulnerable” to external shocks, Fitch said.

The rating agency added that it expected growth to remain subdued between now and 2015, and unemployment to remain high. Spain has the highest jobless rate in the eurozone, at more than 20%.

Fitch agency cuts Italy and Spain ratings

Fitch agency cuts Italy and Spain ratings

However, Fitch said the Spanish economy should grow faster than the eurozone average after this date.

Italy and Spain have introduced austerity measures designed to cut their levels of debt and restore confidence in their finances.

Italy has stated it wants to balance its budget by 2013.

However, despite Italian government reassurances and the European Central Bank intervening to buy up Italy’s debts, country’s borrowing costs have begun to creep up again in recent weeks.

Global policymakers are discussing ways in which to resolve the debt crisis once and for all.

French President Nicolas Sarkozy is meeting the head of the International Monetary Fund, Christine Lagarde, in Paris later on Saturday.

Tomorrow, Nicolas Sarkozy is due to hold talks with German Chancellor Angela Merkel in Berlin.

Plans to expand the eurozone’s bailout fund, and give it greater power, were agreed in July and have been ratified by most national parliaments.

However, these plans are now seen as inadequate. Further action is now being discussed and leaders have said they hope to announce new measures at a G20 meeting in Cannes at the beginning of November.

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