UK Handed Credit Rating Downgrade Warning

The UK's credit rating could be downgraded after an influential agency revised the country's outlook from stable to negative.

Fitch Ratings said the British government needed to contain the expansion of its public debt and had "very limited fiscal space to absorb further adverse economic shocks".

Fitch currently expects the UK's public debt to stabilise at around 94% of its gross domestic product by 2014/15.

It said such a performance would allow it to reaffirm the country's rating at AAA with a stable outlook.

Chief Secretary to the Treasury Danny Alexander said the move by Fitch was a "salutary reminder" of the debt problems facing the country and the need for continued austerity measures.

It is the second of the major agencies to issue such a caution, following Moody's last month.

Mr Alexander said: "This is a salutary reminder as to why Britain needs to deal with the enormous debts and deficits we inherited, why we have got to stick to those plans.

"It should be a wake-up call to anyone who thinks we can afford, as a country, to loosen the purse strings.

"We can't afford to do that and that's why there will be no unfunded giveaways in next week's budget."

Sky News business reporter Alistair Bunkall said: "What the Government will say is that it backs up George Osborne's plan to stick to 'plan A', to reduce the fiscal deficit.

"What they might be minded not to do is produce some sort of big giveaway and stick more tightly to trying to reduce the deficit."