S&P Affirms UK at AA With Stable Outlook and Lifts 2026 Growth Forecast to 1.3 Percent
S&P Global Ratings affirmed the United Kingdom’s unsolicited AA long-term and A-1+ short-term sovereign credit ratings on 9 October in a research update published at 20:01 GMT, kept the outlook at stable and raised its forecast for real GDP growth in 2026 to 1.3 percent from its April estimate of 1.1 percent. The agency expects the general government deficit to narrow to 4.8 percent of GDP in fiscal 2026, the year ending 5 April 2027, and net general government debt to reach 100.1 percent of GDP at the end of 2026, which it calls the highest level since the 1960s.
The action covered more than the sovereign. The Bank of England’s AA/A-1+ issuer credit ratings were affirmed, along with AA issue ratings on debt programmes of Network Rail Infrastructure Finance, The Channel Tunnel Rail Link Section 1 Finance, London Continental Railways and Affordable Housing Finance. The transfer and convertibility assessment is AAA.
The stable outlook rests on the agency’s view that the economy “has remained, and will remain, resilient” to the energy shock tied to the Middle East conflict. Against that it sets a constrained fiscal position, elevated public debt and high government spending, debt service included. Its scorecard shows where the pressure sits: the UK scores 1, the strongest mark on a scale of 1 to 6, on the economic and monetary assessments, but 6, the weakest, on the fiscal debt burden. The factors point to an indicative aa+, and the agency then took one notch off for persistent current account deficits and high gross external financing needs.
First half grows at a 2.2 percent annualised pace
The agency cites growth of 0.6 percent quarter on quarter in the first quarter and 0.5 percent in the second. The official national accounts of 30 September bear both out, with the second quarter revised up by 0.1 percentage points and the first unrevised. On our calculation the two quarters compound to 1.1 percent growth in six months, a 2.2 percent annualised pace.
Growth continued into the first month of the third quarter. The monthly estimate for July from the Office for National Statistics showed output up 0.4 percent on the month and 0.4 percent in the three months to July. Services grew 0.6 percent over those three months while production and construction each fell 0.5 percent; the agency reads weaker production and construction activity as a sign of supply-side and investment constraints. Household consumption, it notes, continued to expand, though at a slower 0.3 percent quarter on quarter.
The path beyond this year dips before it recovers. Growth is expected to weaken to 1.1 percent in 2027 before picking up to 1.5 percent in both 2028 and 2029, an average of 1.4 percent over the three years. Nominal GDP is projected at 3,169.3 billion pounds in 2026, 4.1 percent above 2025 on our calculation. The latest official unemployment rate is 4.9 percent for May to July 2026, up 0.2 percentage points on the year, and the agency projects 4.9 percent for 2026 and 4.8 percent from 2027.
Main UK indicators in the 9 October review
| Measure | 2025 | 2026 | 2029 |
|---|---|---|---|
| Real GDP growth (%) | 1.2 | 1.3 | 1.5 |
| General government balance (% of GDP) | -5.3 | -4.8 | -3.3 |
| Primary balance (% of GDP) | -1.7 | -0.8 | 0.2 |
| Net general government debt (% of GDP) | 99.2 | 100.1 | 100.3 |
| Interest (% of revenue) | 9.0 | 9.6 | 8.3 |
| CPI inflation (%) | 3.4 | 3.0 | 2.0 |
| Current account balance (% of GDP) | -3.0 | -3.1 | -2.4 |
2026 and 2029 are base-case forecasts from the 9 October review, which also gives the 2025 figures. Net debt peaks at 100.7 percent of GDP in 2027 in the same projections.
A slow deficit path, and the official borrowing data
The general government deficit fell to 5.3 percent of GDP in 2025 from 5.9 percent in 2024. The agency now sees 4.8 percent in 2026, 0.1 percentage points above its April forecast, then 4.0 percent, 3.5 percent and 3.3 percent by 2029. The primary balance, which strips out interest, turns to a surplus of 0.2 percent of GDP in 2028. Net debt of 100.1 percent of GDP at the end of 2026 is equivalent to 3,172.5 billion pounds on our calculation.
The official monthly numbers show borrowing running ahead of forecast. Public sector net borrowing reached 77.3 billion pounds in the financial year to August 2026, 2.2 billion pounds less than a year earlier but 8.1 billion pounds above the forecast of the Office for Budget Responsibility, an overshoot of 11.7 percent on our calculation. Central government current receipts of 460.7 billion pounds were 1.1 billion pounds above that forecast; spending was 7.4 billion pounds above it. Interest payable by central government came to 50.0 billion pounds over the five months, equal to 10.9 percent of current receipts on our calculation, and August’s 8.8 billion pounds was the highest August figure in cash terms since monthly records began in 1997.
Public sector net debt, a different measure from the agency’s general government series, stood at 2,985.5 billion pounds at the end of August, or 93.8 percent of GDP. That ratio was 1.3 percentage points lower than a year earlier even though the cash stock rose 78.5 billion pounds, 2.7 percent on our calculation, so nominal output must have grown faster than the debt.
The agency judges that the support measures implemented so far do not pose significant fiscal costs: VAT on domestic electricity cut to zero from 5 percent between 1 October 2026 and 31 March 2027, the 2 pound bus fare cap in England reinstated for 2027, and a 20 percent cut in business rates for pubs, social clubs and live music venues from April 2027. It also lists a windfall tax on bank profits as a possible Budget measure.
Gilt yields, Bank Rate and the November call
Higher borrowing costs run through the review. It reports that the 30-year gilt yield reached 6.03 percent on 1 October, the highest since January 1998, and that the 10-year yield touched 5.53 percent in early October, its highest since 2007. With Bank Rate at 3.75 percent, the 30-year yield stood 2.28 percentage points above the policy rate on 1 October, on our calculation.
The Bank of England left Bank Rate at 3.75 percent on 17 September. Consumer prices rose 3.1 percent in the 12 months to August, up from 2.9 percent in July, with transport, particularly motor fuels, making the largest upward contribution. On our calculation, that is 1.1 percentage points above the 2 percent target and leaves Bank Rate 0.65 percentage points above inflation. The agency expects one 0.25 percentage point rise in November 2026, which on our calculation would take the rate to 4.00 percent, and then no change until the second half of 2027.
The central bank’s share of government debt has shrunk. It owned 16.6 percent of gilts and Treasury bills at 31 March 2026, down from 32.5 percent in March 2023, a fall of 15.9 percentage points on our calculation. Nonresidents hold 33.4 percent, and 24.4 percent of the gilt and Treasury bill portfolio was linked to the retail price index at the end of June 2026.
The rating triggers are mainly fiscal. A downgrade becomes possible if fiscal or external performance turns out significantly weaker than forecast, especially if the cost of debt rises sharply alongside a significant increase in government spending. An upgrade would need government debt to GDP on a predictable downward path, for example through stronger growth than expected or additional medium-term consolidation.
A second agency rates the UK one notch lower
Fitch Ratings affirmed the UK at AA-, one notch below the S&P rating, with a stable outlook on 14 August. Its growth path differs: 0.9 percent in 2026 and 1.2 percent in 2027, against 1.3 percent and 1.1 percent in the 9 October review. Fitch also projects general government debt rising to 106 percent of GDP at the end of 2028 from 102.4 percent at the end of 2025, while the 9 October review puts gross debt at 103.1 percent in 2028, 2.9 percentage points lower on our calculation.
Why it matters: The affirmation keeps the UK in the AA category 19 days before the Budget. The agency’s own numbers show the squeeze: interest absorbs 9.6 percent of revenue in 2026, net debt stays above 100 percent of GDP through 2029, and the deficit narrows by 1.5 percentage points between 2026 and 2029 on our calculation. Official data show borrowing running 11.7 percent above the fiscal watchdog’s forecast in the first five months of the financial year, on our calculation.
Outlook: The Budget and the Office for Budget Responsibility’s new Economic and fiscal outlook are both due on 28 October. Before that, August GDP is published on 15 October, labour market data on 20 October, and September inflation and public sector finances on 21 October. The Monetary Policy Committee’s next decision is due on 5 November, with the agency expecting a 0.25 percentage point rise that month.
Sources: S&P Global Ratings, Office for National Statistics, Bank of England, Fitch Ratings, Office for Budget Responsibility, The Edge.
