Moody’s ratings agency slashed the UK’s economic outlook from “stable” to “negative.”
The agency issued a statement in which it referenced the “heightened unpredictability in policymaking amid a volatile domestic political landscape, which challenges the UK’s ability to manage the shock arising from weaker growth prospects and high inflation.”
The downgrade followed British Prime Minister Liz Truss’ resignation Thursday following merely six weeks in office. Her tenure was defined by its mini-budget, a broad raft of huge tax cuts without any explanation of how they were going to be paid for. That led to a spike in government borrowing costs and a near collapse in gilts, which the Bank of England had to step in to avert with an aggressive buyback program to stabilize the market.
Jeremy Hunt, the new chancellor, has reversed most of the tax cuts, however Moody’s maintains there is a continued “risk of a sustained weakening in policy credibility”.
The change in Moody’s rating does not mean Britain’s credit rating was downgraded, however it could portend a future credit downgrade. Moody’s says its outlook period can be considered to last 12-18 months.
The UK had already seen its outlook lowered to negative by two other ratings agencies, S&P and Fitch.
Like most nations, Britain is in the midst of an energy crisis which has driven up the cost of living and triggered record inflation. In September inflation soared 10.1% year over year, according to data from the Office of National Statistics. That figure equals the 40-year high in the British Consumer Price Index, which was hit just last July.
The Daily Financial Trends
