Fitch upgrades UK outlook to 'stable' but keeps AA minus credit rating

A grey plaque with "Fitch Ratings" engraved on it is bolted to a stone wall next to a towering and ornate black door, part of an old-fashioned building above which a small wedge of bright sky can be seen - Miguel Medina/AFP/Getty

One of the world’s leading credit ratings agencies has lifted its outlook for the UK economy and ramped up forecasts for the country’s growth.

Fitch moved its economic outlook from "negative" to "stable", saying the UK has handled the coronavirus pandemic better than previously predicted.

The agency kept Britain's AA minus credit rating but adjusted its forecast for GDP growth this year from 5pc to 6.6pc.

Its reasons included lower unemployment rates due to job support schemes and business loans, improved trade between the UK and the EU, lower than expected healthcare spending and the speed of Britain's vaccine rollout.

However, it warned that the spread of the Delta variant and the resulting pause in reopening could darken the picture, as could catch-up spending on health and education.

Fitch previously downgraded the UK to AA minus last March due to the impact of Covid, with Moody's following suit in October.

Fitch said: "Recent macroeconomic, labour market and fiscal outturns since the start of 2021 have shown the UK economy and public finances to be more resilient to the impact of the pandemic shock than Fitch had expected.

"Better adaptation of businesses to working with the economic restrictions and greater resilience of private consumption and investment have resulted in an upward revision of our real GDP growth estimate and forecast for 2020-2021."

"Stronger economic activity will support tax receipts and contribute to a smaller fiscal deficit despite the pandemic response stimulus spending."

It predicted that the government's annual deficit will shrink slightly from 12.2pc of GDP in 2020 to 10.7pc of GDP today, with an average unemployment rate of 5.4pc.

The pandemic has driven Britain's national debt to £2.17 trillion, or 98.5pc of GDP, the highest share seen since the Sixties.

A report from the Confederation of British Industry made rosier predictions, saying the UK's economy will race ahead of European rivals through 2022 due to its rapid vaccine deployment.