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Britain says Moody's downgrade based on 'outdated' Brexit view

23 September, 2017, 15:22 | Author: Jeff Stephens
  • Hours after British Prime Minister Theresa May delivered her speech that set out plans for a new relationship with the EU Moody’s cut the UK's credit rating underscoring the economic risks that leaving the bloc poses for the world’s fifth-biggest econ

Outside Brexit the £1bn DUP deal, public sector pay pressure, abandonment of triple lock reform and the weakening economy were also cited as rationale for the downgrade.

The agency on Friday said it was cutting its long-term debt rating on the United Kingdom one notch to Aa2, its third-highest investment-grade rating.

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But Moody's-which stripped Britain of its top-notch AAA rating in 2013-said the outlook for public finances had weakened significantly as May's government softened the austerity drive of former prime minister David Cameron and his finance minister George Osborne. "Since 2015, the government has been finding it increasingly hard to implement the spending cuts that it has been targeting, in particular on welfare spending".

The UK Government said Moody's assessment of the economic toll of Brexit was outdated because Prime Minister Theresa May had laid out her plans for future relations with the European Union in her speech on Friday. "Aside from the direct impact on the UK's credit profile, the loss of economic strength will further exacerbate pressures on fiscal consolidation".

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The country's long-term issuer rating and senior unsecured bond rating were both cut from Aa1 to Aa2 - two notches below the U.S. agency's highest rating - on Friday.

"Moody's believes that the United Kingdom government's decision to leave the EU single market and customs union as of March 29 2019 will be negative for the country's medium-term economic growth prospects".

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A few hours after Prime Minister Theresa May set out plans for new ties with the European Union, Moody's cut the rating by a further notch to Aa2, underscoring the economic risks that leaving the bloc poses for the world's fifth-biggest economy. The ratings outlook was changed to stable from negative. The foreign-currency long-term deposit ceiling was lowered to Aa2 from Aaa, and the short-term deposit ceilings remain P-1.

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