The sun sets behind the London skyline. Ratings agency Fitch puts the UK economy on negative watch.

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Fitch has warned it could strip the UK of its triple A rating next month,

Followed the release on Wednesday of gloomier government economic and fiscal forecasts

Fitch had said it was likely to downgrade the UK if government debt rose above 100%

Financial Times  — 

Fitch has warned it could strip the UK of its triple A rating next month, just days after George Osborne, the chancellor, admitted the recovery would be slower and borrowing higher than had been thought.

Fitch ensured the chancellor’s week ended on a downbeat note in spite of the largely positive response to the Budget by placing the UK on negative watch with a “heightened probability” of a downgrade by the end of April.

The decision by Fitch, one of the “big three” rating agencies, followed the release on Wednesday of gloomier economic and fiscal forecasts by the Office for Budget Responsibility, the government’s fiscal watchdog, to coincide with the Budget.

The OBR’s forecasts showed UK general government gross debt peaking at 100.8 per cent in the 2016-17 fiscal year. The watchdog halved this year’s growth forecast to 0.6 per cent and downgraded the outlook for next year.

Fitch had said it was likely to downgrade the UK if government debt rose above 100 per cent. The country has been on negative outlook since March.

Ed Miliband, the opposition leader, will attempt to capitalise on Fitch’s decision on Saturday when he will spell out in a speech in Birmingham why he believes a Labour government could prevent a “lost decade” of stagnant growth.

Mr Miliband will say: “The government is leading Britain into that lost decade. They’ve shrugged their shoulders, they’ve run out of ideas.”

The Fitch move follows the decision in February by Moody’s Investors’ Service to strip the UK’s triple A rating. Moody’s said the UK government’s austerity programme was a “drag” on the economy.

The Treasury said Fitch’s decision underlined there were “no easy answers to problems built up over many years”.

“We are, slowly but surely, fixing our country’s economic problems. The deficit is down by a third and one and a quarter million new private sector jobs have been created,” it said.

The pound moved sharply lower in late trading on Friday against the dollar and the euro after the rating agency’s announcement but the losses were limited. Government borrowing costs were unchanged, with the yield on the benchmark 10-year bond yield remaining at roughly 1.85 per cent.

Analysts expected Fitch and Standard & Poor’s to follow Moody’s in cutting the UK’s credit rating, with the dismal growth and debt forecasts of the Budget hastening the downgrades.

Gerard Lyons, Boris Johnson’s chief economic adviser, said: “This is not a shock and always seemed likely. It reflects the weak growth, high debt and challenging policy outlook facing the UK. The UK’s biggest problem is its lack of demand which is holding back growth and in turn keeping debt levels high.”

Additional reporting by Kiran Stacey, Alice Ross and Robin Wigglesworth.