Fitch Says U.K. Fiscal Space Limited If Growth, Revenues Underperform

(RTTNews) - Fitch Ratings said the autumn statement announced on Wednesday was consistent with its overall fiscal strategy and with the revised fiscal mandate.

Nonetheless, the agency said Friday it showed limited fiscal space if growth or revenues underperform.

The Office for Budget Responsibility confirmed that the government is on course to meet the fiscal rules it updated in October.

Sound economic growth that boosts tax revenues and low government borrowing costs create a favorable backdrop for deficit reduction, it said.

According to Fitch, measures announced in the autumn statement have small macroeconomic and fiscal impact. The OBR estimated that the aggregate easing was approximately 0.3 percent of GDP in 2016/2017.

As a result, debt reduction is increasingly being driven by underlying growth and revenue trends, which could reverse.

Fitch noted that using better-than-expected revenue forecasts to scale back previously announced expenditure cuts suggests that this may pose downside risks to fiscal targets.

The agency maintained its view that the nominal deficit target implies limited fiscal flexibility to respond to modest adverse economic shocks.