The UK faces one of the biggest tasks among major economies to repair the impact of the recession on the public finances, a ratings agency has warned.
Fitch confirmed the UK’s gold-plated AAA sovereign credit rating but said the Government needed “more ambitious” plans to cut debts.
The agency also said taxpayers could be left with a long-term £40 billion loss on bank bail-outs following the crisis – less than the £50 billion estimate in April’s Budget.
Fitch predicts Government debt will rise to 80 per cent of output by the end of 2010.
This is the fastest rate of deterioration among major nations, although it will be no higher than countries such as France, Germany and the US due to its relatively low level at the end of 2007.
Another ratings agency, Standard & Poor’s, shocked markets in May after it shifted its outlook on the UK’s AAA rating to “negative” due to worries over spiralling debt.
Fitch has kept its outlook “stable” because it thinks the economy will be able to recover more quickly in the medium-term due to a more flexible labour market.
But it adds that the recovery will “remain anaemic” in the next two years as households cut their debts.
It also criticised the Chancellor’s Budget for not going far enough to restore the public finances, echoing recent comments from Bank of England Governor Mervyn King.
“The pace of consolidation set out in the latest Budget is not sufficient to put debt on a firmly downward path within five years.
“Fiscal policy will need to be re-orientated more aggressively towards ensuring public debt sustainability over the next year or so as deflation concerns diminish,” Fitch said.