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TEXT-Fitch affirms the Bank of England at 'AAA'

(The following statement was released by the rating agency)

Oct 02 - Fitch Ratings has affirmed the Bank of England's (BoE) Long-term Issuer Default Rating (IDR) and senior unsecured notes at 'AAA' and the senior unsecured short-term rating at 'F1+'. The agency has also affirmed the senior unsecured notes issued under BoE's debt issuance programme at 'AAA'. The Outlook on the Long-term rating, which was originally revised down from Stable in March 2012, has been maintained at Negative.

The BoE's ratings reflect its central role in the UK and international financial system. They remain underpinned by support from the 'AAA'-rated UK sovereign. The near certainty of sovereign support for the BoE derives primarily from its national strategic importance, as well as its ownership by the UK Treasury.

On 28 September 2012, Fitch affirmed the UK's sovereign ratings at 'AAA' and maintained the Outlook at Negative (see 'UK Affirmed at 'AAA'; Negative Outlook Maintained'' on ).

The affirmation of the UK's 'AAA' ratings reflects the UK's high-income, diversified and flexible economy as well as robust institutions and a high degree of political and social stability. The independent monetary policy framework, as well as sterling's reserve currency status, affords the UK higher financial and economic policy flexibility and debt tolerance than many of its high-grade peers. The gradual improvement in the UK banking sector's capital and liquidity position has further reduced the contingent liabilities arising from this sector. The long average maturity of UK debt - the longest of any high-grade sovereign - also adds to the debt tolerance of the UK as a benchmark borrower in its own currency. Fitch judges the risk of a fiscal financing crisis to be negligible.

However, weaker than expected growth and fiscal outturns in 2012 have increased pressure on the UK's 'AAA' rating, which has been on Negative Outlook since March 2012. With a structural budget deficit second in size within the 'AAA' category only to the US ('AAA'/Negative), and general government gross debt (GGGD) approaching 100% of GDP in 2015-16 under Fitch's revised baseline estimates - the upper limit of the level consistent with the UK retaining its 'AAA' status - the likelihood of a downgrade has therefore increased.

The Negative Outlook on the UK rating reflects the very limited fiscal space, at the 'AAA' level, to absorb further adverse economic shocks in light of the UK's elevated debt levels and uncertain growth outlook.

For all of Fitch's Eurozone Crisis commentary go to ((Bangalore Ratings Team, Hotline:+91 80 4135 5898 Jyothsna.BN@thomsonreuters.com, Group id: BangaloreRatings@thomsonreuters.com, Reuters Messaging: Jyothsna.BN.thomsonreuters.com@reuters.net))