Brexit Fear: Moody’s downgrades UK rating

8 years ago - Published in Finance, Fundamental Analysis

Ratings agency Moody's downgraded Britain's credit rating by a further notch, saying the government's plans to fix the public finances had been knocked off course and Brexit would weigh on the economy. 
             
Moody’s brought the UK’s credit rating down from an Aa1 rating to an Aa2 rating over the weekend amid fears its public finances were not going to do well as a result of Brexit.
Kathrin Muehlbronner, an analyst with the rating agency, said: “Moody’s expects weaker public finances going forward, partly linked to the economic slowdown under way but also reflecting the increasing political and social pressures to raise spending after seven years of spending cuts.”

Britain has cut its budget deficit from about 10% of economic output in 2010 to 2.3% in the 2016/17 financial year which ended in March and the government hopes to bring down debt as a share of output from 2018/19.
           
But Moody's said the outlook for the public finances had weakened significantly with the government's fiscal consolidation plans increasingly in question and the debt burden expected to continue to rise. 

At the same time pressures on the budget would be increased by a weakening of Britain's economy that was likely after its departure from the European Union, which would distract the government from other priorities, it said. 

"Fiscal pressures will be exacerbated by the erosion of the UK's medium-term economic strength that is likely to result from the manner of its departure from the European Union, and by the increasingly apparent challenges to policy-making given the complexity of Brexit negotiations and associated domestic political dynamics," Moody's said. 

The downgrade came after Theresa May delivered her speech in Florence outlining her optimistic vision for UK’s relationship with the EU post-Brexit. A spokesperson for Treasury hit out at the rating’s agency for the timing.
He said: “The prime minister has just set out an ambitious vision for the UK’s future relationship with the EU, making clear that both sides will benefit from a new and unique partnership.”
           
Moody's revised up its outlook on the country to stable from negative, meaning a further downgrade is not imminent.

The UK lost its AAA credit rating from all the major credit rating agencies in June last year after the Brexit vote.