Moody’s has lowered its ratings outlook for the UK government from ‘stable’ to ‘negative’ as the fallout from the mini-budget continues to undermine confidence in the economy. For the downgrade, the report blamed the “unpredictability of policymaking” in the current low-growth, high-inflation environment.
The ratings agency also attributed the downgrade to concerns about the UK’s debt affordability, stemming from the prospect of higher borrowing costs, and the risk of a “sustained weakening in policy credibility”. Moody’s said that the mini-budget, the subsequent U-turns, and the impending change in prime minister, now confirmed to be Rishi Sunak, had all weakened the predictability of UK fiscal policymaking.
Moody’s expects government debt to stay above 100% of GDP in the medium term, especially given the prospect of high government borrowing to help consumers through a tough winter. This, in addition to an expected lack of political appetite for public spending cuts before the next general election, has fuelled its concerns about a possible deterioration of the UK’s budget balance.
The Bank of England’s rating has also been lowered in line with that of the government, from ‘stable’ to ‘negative’, as Moody’s said that the BoE is “an essential part of the government’s economic policy framework and is fully owned by the government”.
The move comes just weeks after Fitch reacted similarly to the mini-budget, downgrading its own outlook for the UK’ from ‘stable’ to ‘negative’ and S&P made a similar move.
In slightly brighter news, the Aa3 rating held by both the UK government and the BoE for long-term foreign and domestic currency issuance has been retained. Moody’s said that this reflected the UK’s economic resilience, “supported by its wealthy, competitive and diversified economy”, as well as its long-standing institutional framework.
