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Fitch Ratings has affirmed the Bank of England's (BoE) Long-term Issuer Default Rating (IDR) at 'AAA' and senior unsecured notes at 'AAA' as well as the senior unsecured short-term rating at 'F1+'. The agency has also affirmed the senior unsecured notes issued under BoE's debt issuance programme at 'AAA'. The Outlook on the Long-term rating has been revised to Negative from Stable.
The BoE's ratings reflect its central role in the UK and international financial system. They remain underpinned by support from the 'AAA'-rated UK sovereign. The near certainty of sovereign support for the BoE derives primarily from its national strategic importance, as well as its ownership by the UK Treasury.
On 14 March 2011, Fitch affirmed the UK's sovereign ratings at 'AAA' and revised the Outlook to Negative (see 'Fitch Affirms United Kingdom at 'AAA'; Outlook Negative' on www.fitchratings.com).
The affirmation of the UK's 'AAA' ratings reflects the progress made in reducing the government's structural budget deficit and the credibility of the fiscal consolidation effort. The UK's 'AAA' rating is underpinned by a high-income, diversified and flexible economy as well as political and social stability. The UK sovereign credit profile also benefits from the macroeconomic and financing flexibility that derives from independent monetary policy and sterling's status as an international 'reserve currency'. However, the government's structural budget deficit is second in size only to the US ('AAA'/Negative) and indebtedness is significantly above the 'AAA' median, although currently broadly in line with France ('AAA'/Negative) and Germany ('AAA'/Stable).
The revision of the Outlook to Negative from Stable reflects the very limited fiscal space to absorb further adverse economic shocks in light of such elevated debt levels and a potentially weaker than currently forecast economic recovery. In light of the considerable uncertainty around the economic and hence fiscal outlook, including the risks posed to economic recovery by ongoing financial tensions in the eurozone and against the backdrop of a still large structural budget deficit and high and rising government debt, the Negative Outlook indicates a slightly greater than 50% chance of a downgrade over a two-year horizon.
