Fitch ratings on Friday maintained Britain's AA- debt rating and outlook at negative, but warned rising deficits, the coronavirus surge and its fraught trading relationship with Europe pose risks.
The affirmed negative outlook "reflects the impact of the coronavirus pandemic on the UK economy and the resulting material deterioration in the public finances," with the agency saying in a statement the deficit widened to 16.2 per cent last year.
London's recent trade deal with the European Union following its departure from the bloc "should limit disruption at borders in the short term," Fitch said, but warned "uncertainty remains around how the new trade arrangement will work in practice and how it will affect the UK's trade with the EU over time. "The rollout of vaccines against Covid-19 could spark a "sustained recovery" beginning in the second half of 2021, and Fitch raised the year's GDP growth forecast to 5.0 per cent from its previous 4.1 per cent, citing the free trade agreement.
But the agency warned of a "weak" short-term economic outlook, as Britain grapples with surging virus cases.
Earlier this month, London imposed a lockdown and ordered the public to stay at home and work remotely, if possible, and only to go out for essential shopping, medical reasons or to exercise.
That will cause the economy to contract three percent in the first quarter of this year, but Fitch said its recovery in the second quarter could be stronger than before thanks to the new trade deal.