The credit rating agency issued a negative rating after it received a smaller budget from the government of former prime minister Liz Truss. He wanted to borrow for lower taxes, which led to unrest in financial markets and more expensive government bonds. Confusion eventually led to Truss being forced out.
Under his successor, Rishi Sunak, the aim was again to adopt a sustainable fiscal policy, in which expenditure was covered by tax revenue. S&P appreciates British energy support for firms and households was weaker than expected and expectations that the biggest short-term risks to the British economy have disappeared helped the rating agency with a brighter outlook.
S&P expects improving relations with the EU to help the British economy grow further over the medium term. As a result, British government debt will begin to decline again from next year. But the UK government’s situation is far from luxurious, with less money coming in or more costly measures likely to hamper 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.
