Moody’s downgrades UK’s credit rating to Aa2

Moody’s Investors Service downgraded the UK’s credit rating amid economic uncertainty and concerns about the country’s public finances.

The credit agency downgraded the UK to an Aa2 rating from Aa1, citing weakening public finances with higher budget deficits in the coming years amid pressure to raise spending in addition to the erosion of economic strength because of the decision to leave the EU and increasing challenges to policymaking.

The UK government had “yielded to pressure and raised spending in several areas” including health and social care, Moody’s said, adding that revenues were unlikely to compensate for increased spending.

Moody’s said in a statement that the “UK government’s decision to leave the EU Single Market and customs union as of 29 March 2019 will be negative for the country’s medium-term economic growth prospects.”

Adding, “Aside from the direct impact on the UK’s credit profile, the loss of economic strength will further exacerbate pressures on fiscal consolidation.”

Regarding the UK’s trading future with the EU, the agency said that it is “no longer confident that the UK government will be able to secure a replacement free trade agreement with the EU which substantially mitigates the negative economic impact of Brexit.”

“Moreover, any free trade agreement will likely take years to negotiate, prolonging the current uncertainty for businesses,” Moody’s added.

Last year two other major credit rating agencies, S&P and Fitch, downgraded the UK’s rating from AAA to AA and AA+ to AA (respectively).

Treasury criticizes the downgrade

The Treasury said that Moody’s decision to downgrade the UK’s rating was out of date after May’s speech in which she outlined her vision of Britain’s relationship with the EU.

“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,” the Treasury said.

“The foundations on which we build this partnership are strong.”

“We are not complacent about the challenges ahead, but we are optimistic about our bright future.”