In the debt and credit crisis that now extends clear across Europe, Fitch Ratings has put the U.K. on notice to get its government finances into much better shape -- pronto. In a special report titled "The UK's Fiscal Challenge - A Formidable Task," released early Tuesday, the ratings agency says "following an unprecedented economic and financial shock, the scale of the United Kingdom's (UK) ('AAA'/Stable Outlook) fiscal challenge is formidable and warrants a strong medium term consolidation strategy - including a faster pace of deficit reduction than set out in the April 2010 Budget."
Fitch gives the new government led by Prime Minister David Cameron some credit for moving "very quickly to establish fiscal consolidation as its top policy priority." At the same time, the agency isn't convinced the actions will go far enough: "However, while likely, it is not obvious from current policy statements that the new government will adopt lower deficit forecasts throughout the medium term. A clear policy agenda already exists for tax cuts in a number of areas and it is possible that the new Office for Budget Responsibility will deliver a more pessimistic assessment of the economic outlook, which would offset the impact of stronger discretionary tightening."
The message could hardly clearer -- and it's one more European nations are now hearing.
Why do investors make the decisions that they do?View Course »