Fitch affirms UK, Bank of England at AA- with stable outlook

​​​​​​​By Ovunc Kutlu

ISTANBUL (AA) - Fitch Ratings said Friday it affirmed the ratings of the UK and the Bank of England (BoE) at AA- with a stable outlook.

The rating agency said the UK's rating is supported by a high income, large and diversified economy, credible macroeconomic policy framework, deep capital markets and the sterling's international reserve currency status, which provides ample financing flexibility.

Those factors, however, are balanced against its high public and external debt burden, and high debt service costs compared to similar economies.

Fitch noted that it revised the UK's growth forecast to 1% for 2024, from 0.2% in March, due to the strength of its economic recovery in the first half of this year.

The rating agency expects economic growth to rise to 1.5% in 2025 and 2026 amid looser financing conditions and improved external demand due to a projected recovery in the EU.

"Inflation declined to the Bank of England's 2% target in May, supported by reduced price pressures in goods and energy, but we expect this to increase to 2.5% by end-2024 due to administered energy price adjustments," it said in a statement.

Fitch forecasts inflation in the UK to average 2.6% in 2024 and 2.3% in 2025.

The BoE started its monetary easing cycle in August with a rate cut of 25 basis points to 5%, the agency said, expecting a gradual monetary easing with rates declining to 4.5% by the end of 2024 and 3% by the end of 2026.

"The BoE's rating reflects the bank's central role in the UK and international financial system," it said in a separate statement. "The rating is underpinned by support from the UK sovereign."

"The near certainty of sovereign support for the BoE derives from its national strategic importance, as well as its ownership by the UK Treasury," it added.