Moody’s downgrades UK’S credit rating over Brexit outlook

One of the top three credit rating agencies, Moody’s has downgraded the United Kingdom’s sovereign credit rating to Aa2, which is two notches below the top grade given by the agency citing Brexit outlook. Analysts at Moody’s says that in the aftermath of the Brexit, the policymaking has become increasingly challenging. The government is likely to struggle to cut costs as Brexit adds to the downside pressure on economic activities. In addition to that, the government notes that after seven straight years of cost-cutting, there is little political and social appetite for further balance sheet tightening.

Given these above-mentioned factors, analysts at Moody’s expect the public finance to remain weak going forward as the debt levels rise. Though the rating was reduced by one notch, Moody’s changed the outlook to stable. The rating agency has also reduced its rating for Bank of England (BoE) from Aa2 to Aa1. Moody’s had previously downgraded the UK in June when credit rating was reduced to Aa1 with a negative outlook. With the current outlook upgraded to stable, a further rating downgrade is unlikely over the next six months. Fitch and S&P had also downgraded UK rating in June this year.

While the pound has moved higher in recent weeks, riding on speculation over rate hikes from the Bank of England (BoE), several analysts including us at FxWirePro have warned the risk remains very much to the downside as Brexit deadline looms.