Fitch Affirms the United Kingdom at AA- With Debt Interest Running at Double the Peer Median
Fitch Ratings affirmed the United Kingdom’s long-term issuer default ratings at AA- with a stable outlook on 14 August 2026, one day after affirming the United States at AA+. Short-term ratings were affirmed at F1+ and the country ceiling at AAA, three notches above the sovereign rating.
Fitch attributes the rating to a high-income, large, diversified and flexible economy, a credible macroeconomic policy framework, and financing flexibility from deep capital markets and sterling’s international reserve currency status. Against those it sets high public and external debt and a debt interest to revenue ratio it describes as around double the AA peer group median.
The fiscal path
Fitch forecasts the general government deficit narrowing to 4.2 percent of GDP in 2028 from 5.2 percent in 2025, on tax rises. That remains well above the AA median of 2.1 percent, and it is about 0.8 percentage points slower than the government’s own target. The agency attributes the gap to expected spending overruns against plans to slow average real current spending growth to 0.8 percent in the three financial years to March 2030, and to additional pressures including defence and social care.
It notes that scope for new revenue-raising measures is limited by political pledges not to raise rates of income tax, VAT or National Insurance, and by a tax to GDP ratio already budgeted to run 5 percentage points above its pre-pandemic level by the 2029/30 financial year.
| Fitch forecast, United Kingdom | Value | AA median |
|---|---|---|
| General government deficit, 2028 | 4.2 percent of GDP | 2.1 percent |
| General government debt, end-2028 | 106 percent of GDP | not stated |
| Debt interest to revenue, 2027-28 average | 8.3 percent | not stated |
| Real GDP growth, 2026 | 0.9 percent | 2.9 percent |
| Average debt maturity | 13.4 years | 8 years |
Fitch Ratings, 14 August 2026. General government debt was 102.4 percent of GDP at end-2025. Index-linked debt is 24 percent of the portfolio.
Fitch says both debt to GDP and debt interest to revenue are around double the peer group medians, and that this limits the scope for further fiscal slippage without pressure on creditworthiness.
Growth cut, inflation up, then down
Fitch forecasts real GDP growth of 0.9 percent in 2026 and 1.2 percent in 2027, an average 0.25 percentage points slower than it expected at its February review, citing the drag from high energy prices, tighter funding conditions and further labour market weakness. It expects growth to pick up in 2028 to just above the trend rate of 1.4 percent, still around half the AA median of 2.9 percent.
On prices, it projects inflation rising from 2.6 percent in June to 3.7 percent at year-end, mainly on energy price cap increases, before falling to 2 percent at end-2028. It expects the Bank of England to hold Bank Rate at 3.75 percent through 2026 and to cut from next year to reach 3 percent in 2028.
Fitch’s proprietary sovereign rating model produced a score equivalent to AA-, and the rating committee made no qualitative adjustment to that output.
Politics and the external position
The agency notes the change of Prime Minister to Andy Burnham is the sixth in just over ten years, but expects his more commanding position within the ruling party and higher approval ratings to support greater political stability for the remainder of the parliamentary term, which runs at the latest to July 2029. It does not anticipate a significant near-term change to fiscal rules or macro policy, while seeing greater fiscal policy uncertainty closer to the next election.
Externally, Fitch projects the current account deficit widening this year on higher energy imports before reverting to 3 percent of GDP in 2028, with net external debt rising to 28.5 percent of GDP against an AA median creditor position of 25 percent. External liquidity is expected unchanged at 54 percent in 2026.
Why it matters
Fitch has now affirmed two AA-band sovereigns in two days and told both the same thing. The United States, affirmed at AA+ on 13 August, was told its interest burden is heading for 12.6 percent of revenue against an AA median of 3.5, with debt more than double the median. The United Kingdom, affirmed at AA- on 14 August, is told its debt interest to revenue and its debt to GDP are each around double the peer median.
For Gulf reserve managers holding both Treasuries and gilts, the practical read is that both sovereigns carry Stable Outlooks, and that in both commentaries the diagnosis is the same: the binding constraint is the rising cost of servicing the debt stock rather than the deficit headline.
Outlook
Fitch’s downside triggers are a markedly higher debt to GDP ratio or a steep increase in the debt trajectory, and evidence of a substantially weaker growth outlook. Its upside triggers are confidence in debt to GDP on a clear downward path, and evidence of significantly stronger growth prospects. On Fitch’s baseline projections, debt rises to 106 percent of GDP by end-2028 and trends up more gradually thereafter; neither an upgrade nor a downgrade trigger appears imminent, but the rising debt trajectory leaves limited room for a material fiscal deterioration.
Source: Fitch Ratings, Rating Action Commentary, “Fitch Affirms United Kingdom at ‘AA-‘; Outlook Stable”, 14 August 2026.
