Fitch puts U.K. AAA rating on credit watch negative

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LONDON Fitch Ratings on Friday placed Britain's AAA rating on review for a downgrade, a blow to the government just days after it presented an austere budget it argued would put the country on a path to recovery.

Fitch said it put the U.K. on "rating watch negative," which indicates a heightened probability of a downgrade in the near term. The agency expects to complete its review of the U.K.'s sovereign ratings by the end of April.

The report, which comes just a month after Moody's Investor's Service downgraded the U.K.'s credit rating, cites worsening forecasts for government debt.

"The persistently weak performance of UK growth, in part due to European growth, has increased uncertainty around the UK's potential output and longer-term trend rate of growth with significant implications for public finances," said Fitch in a statement on Friday.

The U.K.'s Conservative-led government on Wednesday presented a public spending plan that promised more austerity, despite weakness in the economy, and has raised fears of a third recession in just over four years. It has insisted, in the face of withering criticism, that debt-reduction measures are the best way forward for the country.

That view is not shared by all. After three years of austerity, the country is borrowing more than Treasury chief George Osborne initially thought and the economy is growing far slower than anticipated.

The independent Office for Budget Responsibility estimates that public debt will continue rising until 2016-17, peaking at 85.6 percent of Britain's annual gross domestic product. In its last forecast in December, it estimated debt would peak at 79.9 percent in 2015-16.

Britain's economy shrank by 0.3 percent in the last three months of 2012, and many analysts have predicted another contraction in the first quarter of 2013. That would put the U.K. back into a recession - technically defined as two consecutive quarters of economic contraction.

Last month, Moody's downgraded the U.K.'s triple-A credit rating, saying that sluggish economic growth would hinder the government's ability to control rising debt and deal with any new financial shocks.

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