Ratings agency Moody’s has lowered its economic outlook for the UK from “stable” to “negative” due to the country’s political instability and high inflation.
The agency ranks countries and businesses on how likely they are to pay back their debt.
The rating has a profound impact as these ratings judge what rate of interest countries will be forced to pay on any money that is loaned.
This could result in the UK’s credit rating being lowered.
Moody’s stated the reason for the UK’s change in rating was due to “heightened unpredictability in policymaking amid weaker growth prospects and high inflation” and “risks to the UK’s debt affordability from likely higher borrowing and risk of a sustained weakening in policy credibility”.
The agency’s latest rating comes after the short-lived mini-budget in September which quickly resulted in the then Chancellor Kwasi Kwarteng being replaced by Jeremey Hunt who reversed the pledged tax cuts.
Moody’s stated:
“The prospect of higher borrowing, more persistent inflation, and a more significant tightening in monetary policy leading to higher funding costs has increased risks to the UK’s debt affordability over the medium term.
Weakening debt affordability would be of heightened significance for the UK’s fiscal strength given sterling’s status as a reserve currency.”
However, the UK’s credit rating was not changed as Moody’s also said:
“The country’s longstanding institutional framework remains strong and will continue to support the UK’s ability to respond to shocks, as seen during the pandemic.
Furthermore, the structure of the UK government debt, with a very long average maturity of around 15 years, as well as a deep domestic investor base adds a degree of resilience to the credit profile in the face of shocks.”
The news will come as no shock to Rishi Sunak, who outlined in his first speech as Prime Minister after taking over from Liz Truss the challenging prospect the UK economy faces. He stated:
“Right now, our country is facing a profound economic crisis. The aftermath of COVID still lingers. Putin’s war in Ukraine has destabilised energy markets and supply chains the world over.”
