Fitch Ratings has maintained the United Kingdom's Long-Term Foreign-Currency Issuer Default Rating at AA- and kept its Outlook at Stable. The agency's decision underscores a balance: structural strengths in the UK economy set against evolving fiscal and growth pressures.
Why the rating was maintained
Fitch pointed to the UK's status as a high-income, large and diversified economy with a flexible structure. The rating agency also noted a credible macroeconomic policy framework and the country's financing advantages derived from deep domestic and international capital markets and the pound sterling's role as an international reserve currency. These attributes, Fitch says, support the UK's capacity to manage shocks and service its obligations.
Growth projections and potential constraints
Fitch's baseline forecast anticipates a modest slowdown in output growth. GDP growth is projected to ease to 1.1% in 2026 from 1.3% in 2025, before picking up to 1.5% in 2027 as monetary policy easing filters through and stimulates domestic demand. Even with that uptick, the agency expects UK growth to remain below the AA median of 2.6%.
The firm assesses the UK's potential growth rate at 1.4%. It highlights one notable downside risk: a sharper, sustained slowdown in net migration following the tightening of visa and permanent residency rules. Fitch identifies this migration trend as an important factor that could further weaken labour supply and medium-term growth.
Fiscal outlook and debt dynamics
On fiscal metrics, Fitch projects the general government deficit will narrow by 0.6 percentage points in 2026 to 4.8% of GDP and to 4.5% in 2027. Both figures remain above the current AA median deficit of 2.3% of GDP. The Office for Budget Responsibility's projections, cited by Fitch, indicate tax revenues (tax-to-GDP) are expected to rise by 1.3 percentage points from fiscal year 2025 to fiscal year 2027, with a further 0.6 percentage point increase forecast for fiscal years 2028-2029.
Fitch expects public debt to increase further: general government debt is forecast to rise by 1.5 percentage points in 2026 to 103.8% of GDP and to 104.7% in 2027. These levels are substantially above the AA median, which Fitch reports at 49% of GDP.
Political and implementation risks
Fitch highlights that weaker public approval ratings for Prime Minister Starmer's government add an extra layer of fiscal policy uncertainty. The agency points to a recent policy reversal - the abandonment of planned welfare cuts in 2025 - as evidence of implementation risk. At the same time, Fitch notes that the government's large parliamentary majority and the fact that the next general election is not required for another three and a half years provide some mitigation of short-term political disruption. The agency expects the risk of sparking markedly higher gilt yields will act as a constraint against aggressive fiscal loosening.
Inflation, interest rates and debt structure
Fitch projects headline inflation will decline to 2.4% by the end of 2026 from the current 3.0% and to 2.0% by end-2027, aligning with the Bank of England's target. The agency anticipates the policy interest rate will be lowered by 75 basis points in 2026 to 3%, which it regards as consistent with the neutral interest rate.
On public debt management, Fitch emphasizes that the long average maturity of central government debt - 13.7 years - together with the lower cost of inflation-linked instruments, helps limit the near-term impact of relatively high gilt yields.
This report consolidates Fitch's key assessments and projections without adding external commentary. It reflects the agency's view at the time of its rating action and highlights the trade-offs between the UK's structural financing strengths and its rising fiscal and growth vulnerabilities.