The move by Fitch means there is a "slightly greater than 50%" chance of a downgrade in the next two years.
Fitch said the affirmation of the AAA rating reflected the progress made in reducing the UK government’s structural budget deficit and the credibility of the fiscal consolidation effort, something Chancellor George Osborne might take solace in.
But it added that the sheer size of the budget deficit, second only to the US which it has also previously awarded a negative outlook, meant there was limited fiscal space to absorb further adverse economic shocks.
Additionally, the economic recovery has the potential to be weaker than currently forecast and the ongoing financial tensions in the eurozone could have a detrimental knock-on effect.
These were the primary factors behind the negative outlook, which Fitch does not expect to resolve until 2014.
The rating agency also put pressure on Osborne’s upcoming Budget, saying it expects the speech to reaffirm the government’s commitment to deficit reduction, with "permanent reductions in current spending and structural reform to public services and welfare".
On the eurozone crisis, Fitch said it was not resolved and could once more intensify and this would have significant implications for the UK in light of its trade and financial linkages with the continent.
But on a more positive note it said the UK banks are relatively well placed to absorb future episodes of financial market turmoil without additional recourse to the taxpayer for capital.
