Finance
Credit rating agencies give cautious thumbs up to UK budget
Published by Global Banking and Finance Review
Posted on November 28, 2025
3 min readLast updated: January 20, 2026
Global Banking and Finance Review
Company
Published by Global Banking and Finance Review
Posted on November 28, 2025
3 min readLast updated: January 20, 2026
Credit rating agencies cautiously approve the UK budget, highlighting fiscal consolidation efforts but noting execution risks and political challenges.
By Marc Jones
LONDON (Reuters) -The "big three" credit rating agencies have given a cautious thumbs up to Britain's budget this week, regarding it as an ongoing push for fiscal consolidation by the government, albeit with a high degree of execution risk.
Moody's was the last of the main rating firms to give its assessment on Friday, saying the budget's tax rises and spending plans had dovetailed with its decision made a week ago to keep its Aa3 rating for Britain on a "stable" outlook.
The budget's largely back-loaded tax increases, offset by higher welfare spending, are expected to see Britain's deficit shrink to about 5% of GDP this year, from 6% in 2024. It should then reduce to about 4% of GDP in 2026 and continue to crawl lower in the later years of the government's term.
'DEBT RATIO WILL KEEP RISING'
"Such a slow pace of fiscal consolidation means the government debt ratio will keep rising, although only moderately," Moody's said, predicting debt-to-GDP would increase to just under 107% by 2030, from around 103% this year.
"While the government's willingness to bring public finances back in line with its targets is positive, execution risks remain high," Moody's said.
"In recent years, government expenditure has consistently exceeded initial forecasts, resulting in higher deficits and debt."
Britain's finances have been front and centre since the unfunded spending plans of the then-Liz Truss government in 2022 caused a major bout of stress in British bond markets.
Fitch, which has an equivalent AA- stable rating for British sovereign debt, published its assessment on Thursday, saying the budget had been "broadly consistent" with its expectations too, but also flagged the "considerable implementation risk".
That's because the new tax hikes, totalling 26 billion pounds or 0.7% of British GDP would not be truly felt until around mid-2029, the latest possible date for the next election.
GOVERNMENT TRAILING IN THE POLLS
The ruling Labour Party scored a landslide victory in the last election in July 2024, but it is now trailing badly in polls to the right-wing Reform UK party following a series of missteps.
"Challenging political dynamics within the ruling Labour Party, exacerbated by the government’s weak polling, present a risk of further policy reversals," Fitch said, adding a worst case would be a ditching of the so-called "fiscal rule" to have balanced day-to-day spending by 2029/30.
S&P Global, which has had a AA rating on Britain since it slashed it from AAA after the 2016 Brexit vote, said it expected fiscal pressures on the rating to persist "over the medium term", despite the "significant" new revenue-raising measures.
It also warned the government might choose to backtrack on some of the announced taxes ahead of the election.
"We consider the UK’s fiscal position as vulnerable and one of the key constraints on our sovereign rating," its top UK sovereign analysts said.
(Reporting by Marc Jones; editing by Alun John and Alex Richardson)
Gross Domestic Product (GDP) is the total monetary value of all goods and services produced within a country's borders in a specific time period. It is a key indicator of a country's economic performance.
A stable outlook indicates that a credit rating agency expects the issuer's creditworthiness to remain unchanged over the medium term. It suggests that there are no immediate risks that could lead to a downgrade.
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