Moody’s has confirmed the UK’s sovereign credit ratings at “Aa2”, but has changed its outlook from “stable” to “negative.”
The agency’s experts have linked this decision to the weakening of British institutions, which have been forced to cope with a large number of political challenges that have emerged recently. They also believe that the UK’s economic and fiscal stability will weaken in the future and become more susceptible to shocks than previously thought.
“Increased inertia and, at times, a paralysis that characterize the political decision-making process” in the run-up to the UK’s exit from the European Union, show how much “Functionality and predictability have always distinguished the UK’s institutional environment,” the analysts write.
Brexit has been a catalyst for the deterioration, which Moody’s expects to continue for some time, given that discussions on the terms of the UK-EU trade deal still causes a lot of controversies.
One of the most important points in terms of credit ratings at Moody’s is the fact that the UK’s commitment to budget discipline is weakening. This is reflected in the statistical data: after several years of fiscal consolidation, the UK debt burden remains high, while the size of the public debt is currently only slightly lower than the peak level of 86.9% of GDP recorded in 2015, and it is unlikely that it will significantly decrease in the medium term, the agency said in a press release.
Moody’s baseline forecast assumes that the UK government debt will remain around 85% of GDP in the next 3-4 years in the absence of unexpected economic shocks, and will continue to decline. However, the agency’s experts note the risk that the country’s debt load will start to grow in the absence of a course to reduce debt in the current political climate.
In addition to the high debt burden, a negative factor for the creditworthiness of Britain is weaker than expected economic growth, associated in particular with a fall in business investment after the Brexit referendum, Moody’s said.
Among the positive rating factors, the agency’s experts note the diversification of the British economy, the stability of the monetary policy structure and the stability of the market Labor.
UK long-term ratings on the S&P Global Ratings are at “AA” with a “negative” outlook; on Fitch, the “AA” rating is under review with a “negative” outlook.
