Fitch strips UK of AAA status

George Osborne's efforts spur the economy suffered a sharp setback last night as the UK was handed down a second downgrade to its once-coveted top credit rating.

International agency Fitch stripped the UK of its gold-plated AAA status, with the country on the brink of an unprecedented triple-dip recession.

The UK had already been downgraded by Moody's in Februaury (See: Moody's strips UK of 'AAA' sovereign rating) leaving Standard & Poor's as the only major ratings agency to rate the UK as an AAA country.

Fitch said the move came on 'a weaker economic and fiscal outlook' for the UK, rounding off a dismal week for the chancellor.

The International Monetary Fund warned Osborne was 'playing with fire' as it pressed ahead with austerity before the recovery got going even as incoming Bank of England governor Mark Carney branded the UK a 'crisis economy'.

A defiant Osborne though, made it clear he was ready to mount a defence of his plans when IMF inspectors arrive in London next month for the annual health check of the UK economy.

The government believes the Washington-based Fund is in the process of preparing to call for a relaxation of the austerity plans – a recommendation the chancellor was prepared to defy.

According to Osborne he was not 'about to restart the consumption boom' that took place under Labour.

According to Fitch, despite the UK's strong fiscal financing flexibility underpinned by its own currency with reserve-currency status and the long average maturity of public debt, the fiscal space to absorb further adverse economic and financial shocks was no longer consistent with an AAA rating.

The agency added, despite the loss of its AAA status, the UK's extremely strong credit profile was reflected in its AA+ rating and the stable outlook.

Meanwhile, data on 25 April would show whether Britain fell into its first ever triple-dip recession.

According to analysts, the short-term picture was that the deficit reduction process had stalled, and the medium-term picture was definitely worse. They add Fitch's move was not helpful to Osborne and though there was additional pressure on the chancellor, but there would be no meaningful change of policy.

The independent Office for Budget Responsibility, last month, cut its 2013 growth projection to 0.6 per cent from 1.2 per cent. The OBR also expected net debt to start falling in 2017-18, a year later than previously planned.

According to commentators, investors tended to shrug off changes in ratings.