Moodys have downgraded UK debt to AA2, the lowest ever credit rating for UK citing “Brexit challenges” as the main reason for the drop.
The UK lost its remaining AAA rating (S&P) four days after Brexit vote – but this is the first ever time a major credit rating agency has cut the country to third rank.
Further “loss of economic strength” was cited as the main reason for the cut with growth expected to halve this year.
The business also said it is “no longer confident” UK will get a trade deal, with even a best case scenario not giving same single market access putting supply chains at risk.
“The UK is a relatively open economy, and the EU is by far its largest trading partner. Research by the National Institute of Economic and Social Research (NIESR) suggests that leaving the Single Market will result in substantially lower trade in goods and services with the EU,” explained the credit agency.
“In a similar vein, both the NIESR and the Bank of England estimate that private investment will be materially lower in the coming years than in a non-Brexit scenario.”
Even if the UK government does manage to secure a deal that somehow makes up for the economic losses of Brexit, warned Moodys, it is likely to “impose additional costs, raise the regulatory and administrative burden on UK businesses and put at risk the close-knit supply chains that link the UK and the EU.”
Downgrading the UK to this historically low level causes more embarrassment for the Prime Minister whose speech in Florence was snubbed by many EU officials and coincided with an opinion poll showing that the majority of Brits would now want to stay in the EU.
– Especially as the credit agency also cited Theresa May’s £1bn deal to cling onto power with the help of the DUP hampering the UK’s economic prospects. Moodys also warned that public sector pay pressure along with a weakening UK economy informed their decision.
A number of other Brexit-related issues were featured in the damning report.
Moody’s predicted weakening UK growth during a period in which “policymakers distracted” by twin challenge of legislating Brexit and negotiations.
Outside Brexit the £1bn DUP deal, public sector pay pressure, abandonment of triple lock reform and the weakening economy were also cited as rationale for the downgrade.
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