Moody's downgrades UK's credit rating due to spending and Brexit fears

Andrew Cummings
September 23, 2017

Moody's cut Britain's long-term credit rating Friday, citing economic uncertainty sparked by complex Brexit negotiations and the likelihood of weaker public finances.

Credit rating agencies, in essence, rate a country on the strength of its economy - scoring governments or large companies on how likely they are to pay back their debt.

Moodys have downgraded United Kingdom debt to AA2, the lowest ever credit rating for United Kingdom citing "Brexit challenges" as the main reason for the drop.

Britain's credit rating has been cut over concerns about the UK's public finances and fears Brexit could damage the country's economic growth.

The business also said it is "no longer confident" United Kingdom will get a trade deal, with even a best case scenario not giving same single market access putting supply chains at risk.

"It would likely impose additional costs, raise the regulatory and administrative burden on United Kingdom businesses and put at risk the close-knit supply chains that link the United Kingdom and the European Union".

This was linked partly to an economic slowdown already under way, but also reflected increased political pressure on the ruling Conservative Party to raise spending after seven years of fiscal belt-tightening, Moody's said.

Moody's said the Government's plans to fix the public finances were increasingly in question and debt levels are expected to rise.

As a result, it said it expects the UK's budget deficit to remain around 3.5 per cent of GDP - significantly higher than the below 1 per cent by 2020-21 that ministers have promised.

It said hints that the United Kingdom government was "softening its noegitating stance in a number of areas", especially on the need for a transitional period before Britain fully leaves the European Union, was behind the change to "stable".

The ratings agency cut the debt grade one notch to Aa2 from Aa1 with a stable outlook, which reflects expectations Britain's debt will "continue to rise", and worries that whatever trade agreement is reached with the European Union, even a "best-case scenario would not award the same access to the EU. that the United Kingdom now enjoys".

Other reports by iNewsToday