LONDON, England

FITCH Ratings agency warned yesterday that Britain faces a “formidable” fiscal challenge and must cut its budget deficit faster to maintain its top credit rating.

In a special report ahead of an emergency budget planned by the new coalition government, Fitch noted that the rise in public debt ratios since 2008 is faster than any other AAA-rated country.

It added that the primary deficit is almost twice as large as during previous economic downturns in the 1970s and early 1990s.

Britain’s budget deficit is forecast to reach 10.4 per cent of gross domestic product this year, while debt as a percentage of GDP was 62 per cent in 2009/10.

“The scale of the United Kingdom’s fiscal challenge is formidable and warrants a strong medium term consolidation strategy,” the report said.

Prime Minister David Cameron has pledged drastic spending cuts, noting on Monday that annual interest payments alone would rise to around 70 billion a year, from 42 billion currently, within five years if action is not taken.

Fitch noted that the new coalition government had acted “very quickly” to make fiscal consolidation its top priority and has announced immediate tightening measures of 0.4 per cent of GDP in the form of £6 billion of spending cuts.

It stressed that Cameron’s budget on June 22 must set out a more ambitious programme than the targets set out in the previous government’s April budget to reduce the deficit to 8.5 per cent of GDP in 2011/12 and to 5.2 per cent in 2013/2014.

Former Prime Minister Gordon Brown had repeatedly warned that bigger spending cuts this year could jeopardize Britain’s fledgling recovery from its worst recession since World War II.