Moody's Slams Theresa May: UK Credit Rating Downgraded

Just hours after Theresa May's delivered her big Brexit-related, "Shared History, Shared Challenges, Shared Future" speech in Florence, Italy, the UK’s credit rating was downgraded by Moody’s.

The UK prime minister delivered the landmark speech on Friday with the aim of unlocking the stalled Brexit negotiations. But Moody's was unimpressed.

The bond rating service reduced the credit rating a notch to Aa2, or two rungs below the triple A rating Britain had enjoyed for 35 years until 2013.

The rating agency said:
“The outlook for the UK's public finances has weakened significantly since the negative outlook on the Aa1 rating was assigned, with the government's fiscal consolidation plans increasingly in question and the debt burden expected to continue to rise.”

A second reason it gave for the downgrade was that Britain’s economic performance was likely to be hit by Brexit. Political infighting within government has added to pressures, Moody’s added, saying the public finances were likely to be undermined by “the complexity of Brexit negotiations and associated political dynamics”.

“Moody's is no longer confident that the UK government will be able to secure a replacement free trade agreement with the EU which substantially mitigates the negative economic impact of Brexit,” it said,

“Moody’s expects the budget deficit to remain at 3 to 3.5 per cent of GDP in coming years against the government’s plan of a gradual reduction to below 1 per cent in 2021-22,” its note said.

The British Treasury responded immediately, accusing Moody’s of being out of date. 

“The assessments made about Brexit in this report are outdated. The prime minister has just set out an ambitious vision for the UK’s future relationship with the EU, making clear that both sides will benefit from a new and unique partnership,” the Treasury said in a statement.

Moody’s said the outlook on its Aa2 rating was now stable.

S&P and Fitch, had downgraded Britain to a similar rating in June last year and both have said this year that the outlook remains negative.

-RW