Fitch followed S&P’s lead on Thursday and reduced the economic outlook for Britain’s sovereign debt from “stable” to “negative,” following their lead after the UK government unveiled a significant tax reform package.
According to a statement from Fitch, “the sizeable, unfunded fiscal package announced under the government’s new growth plan might result in a considerable increase in the fiscal deficit in the medium term.”
As part of a package of unfunded cuts that roiled the financial markets and sent the pound to record lows, the British government two days ago abandoned plans to reduce the high income tax.
Kwasi Quarting, the Treasury Secretary, announced on Monday that he would abandon plans to eliminate the 45 percent income tax rate applied to incomes over 150,000 pounds ($167,000) per year.
He stated in a statement that “it is evident that the repeal of the 45 percent tax rate has become a diversion from our fundamental duty to address the difficulties facing our country.”
After the Conservatives published early excerpts from a speech that Quarting is scheduled to deliver later in the day at the party’s annual conference in Birmingham, central England, the minister made his declaration a few hours later.
“We must continue on the route,” the minister was supposed to remark. I am sure that our strategy is the best one.
Prime Minister Liz Truss defended the actions on Sunday, but she acknowledged that she could have “better paved the way.”
Upon taking office less than a month ago, Truss pledged to fundamentally transform the British economy and put an end to years of subpar expansion.
However, the pound dropped to a new low versus the dollar after the government announced on September 23 a stimulus package that includes tax cuts costing $50 billion (45 billion pounds) and will be repaid by borrowing.
Fears that the Bank of England would soon raise interest rates led mortgage lenders to withdraw their best deals, which in turn drove homeowners to panic and force the Bank of England to intervene to support the bond market.
Fitch downgrades the economic forecast for UK debt.
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