Britain’s credit rating has been downgraded a further notch, with Moody’s saying the government’s plans to fix the public finances had been knocked off course and Brexit would weigh on the economy.
The ratings agency, which was the first major credit ratings agency to strip Britain of its top-notch AAA rating in 2016, said it had cut the rating to Aa2 from Aa1.
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 on Friday 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.
Britain’s government said Moody’s assessment of the Brexit hit to the economy was “outdated”, because Theresa May had laid out an ambitious plan for future relations with the EU in a speech earlier on Friday.
Moody’s revised up its outlook on the country to stable from negative, meaning a further downgrade is not imminent.
