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Credit rating agency Moody’s has downgraded Britain’s credit status, citing a decline in economic strength in the wake of the coronavirus pandemic and continued Brexit uncertainty.
With the government struggling to contain a second wave and ministers under pressure to sanction additional spending to protect businesses and jobs, Moody’s downgraded the UK’s sovereign debt one notch to Aa3 from Aa2.
The rating agency said it expected public finances to worsen as a result of the pandemic, although it expected the overall debt burden to stabilize next year, leading it to downgrade the “negative outlook” attached to the rating to a from “stable”. .
Brexit was also blamed for the weaker forecast for growth and tax collection over the next year, despite assurances from No. 10 that the UK economy will flourish whether or not a trade deal is struck before. end the transition period at the end of December.
Boris Johnson said on Friday that Britain should prepare for a no-deal Brexit outcome, but stopped short of announcing that the country would exit trade talks.
In a damning indictment of the government’s bargaining strategy, Moody’s said that its failure “to manage change in a predictable and trust-building manner is evident in the UK’s approach to Brexit, in its inability to achieve a result significantly reproducing the benefits of EU membership and in its approach to implementing the agreement reached with the EU to date ”.
“Even if there is a trade deal between the UK and the EU by the end of 2020, it is likely to be limited in scope and therefore the UK’s exit from the EU, in Moody’s view, will continue to put pressure on the drop on private investment and economic growth, “added the agency.
The rating downgrade follows a series of reports on government finances that have shown rising debts and falling tax revenue over the next year.
Tighter government measures to deal with the pandemic have put more pressure on an economy already weighed down by Brexit uncertainties.
Earlier this week, the Institute for Fiscal Studies said that by the middle of the decade, public finances could suffer a deficit of £ 200bn that the government will have to cover by raising taxes, cutting spending or borrowing more funds.
The International Monetary Fund has urged Rishi Sunak to protect the economy from further damage by increasing indebtedness, making use of ultra-low interest rates offered to so-called safe haven countries like the UK.
But the downgrade is likely to persuade Treasury officials to be careful before agreeing to further increase the deficit, possibly prompting a further downgrade.
The UK lost its status as one of the triple-A rated nations of the world in 2016 and was further downgraded in 2017 as it struggled to reduce its debts despite six years of austerity.
