The credit rating agency gave that rating after a poorly received mini-budget from former Prime Minister Liz Truss’s government. She wanted to borrow money to lower taxes, which led to turmoil in the financial markets and much more expensive government bonds. The chaos eventually led to Truss’ forced departure.
Stable fiscal policy
Under his successor Rishi Sunak, the aim is to once again pursue a stable fiscal policy in which expenditures are covered by tax revenues. S&P appreciates that. The fact that UK energy support to businesses and households has been cheaper than expected and the expectation that the major near-term risks to the UK economy have disappeared also helped the rating agency with a brighter outlook.
S&P expects improved relations with the European Union to help the UK economy grow more over the medium term. Partly because of this, UK public debt could start to fall again from next year. But the UK government’s situation is not a luxury one, and less money inflows or more expensive measures could affect its ability to respond in crisis situations. On the other hand, the credit rating could rise further if the UK economy grows faster than expected.