Global economic havoc has affected both developed economies and emerging markets. The UK has the world’s sixth-largest economy in terms of gross domestic product. Nevertheless, one of the most influential rating agencies, S&P Global Ratings (S&P), downgraded Great Britain’s sovereign credit rating to "negative" from "stable".
Experts at S&P Global Ratings came up with an update to the UK’s rating shortly after the new government unveiled its fiscal plan. The main argument was the Prime Minister's tax cut plans which would arouse concern about the country’s fiscal outlook due to a snowballing public debt. In September, ex-Finance minister Kwasi Kwarteng introduced to the Parliament a package of stimulus measures aimed to prop up the domestic economy through massive tax cuts. Besides, the government decided to cancel the planned increase in the corporate profit tax to 25% from the current 19%. The S&P experts did not appreciate this generosity.
The outlook revision primarily reflects what the agency views as rising fiscal risks for the UK’s financial health in the next two years. Experts suppose that the suggested stimulus measures could weaken the financial resilience of Great Britain. At present, the authorities are planning to fund such measures via extra borrowings without any mitigating measures for budget spending and revenue.
The rating firm predicts that the UK will remain in a technical recession for a few quarters ahead. The agency projects Britain’s GDP to shrink by 0.5% in 2023 following the 3.3% expansion for the whole of 2022. The UK’s national economic output will grow by 1.4% and 1.6% respectively in 2024 and 2025.
