WASHINGTON, D.C.: Moody’s cut Britain’s long-term credit rating Friday, citing economic uncertainty sparked by complex Brexit negotiations and the likelihood of weaker public finances.
The ratings agency cut the debt grade one notch to Aa2 from Aa1 with a stable outlook, which reflects expectations Britain’s debt will “continue to rise,” and worries that whatever trade agreement is reached with the European Union, even a “best-case scenario would not award the same access to the EU… that the UK currently enjoys.”
Moody’s predicted “weaker public finances going forward” as the government boosts welfare spending after several years of cuts and Prime Minister Theresa May’s parliamentary coalition faces pressure to make good on promises to boost spending for Northern Ireland.
The ratings agency also expects Brexit and the loss of access to the single market to weigh on growth, saying it 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.”
The downgrade came hours after May, in a major address in Italy, vowed that Britain would largely maintain its current ties with Brussels ahead of a fourth round of negotiations with the European Commission next week.
The pound fell on the speech, which critics said did too little to clarify matters.
“Overall, there was very little detail or progress in this speech, with a risk of continued uncertainty among businesses and investors,” Barclays said in a note.
“Any continued delay in next week’s negotiations may in turn dampen sentiment and the future investment and growth outlook.”