The U.K. government’s ratings outlook was cut to “negative” from “stable” by Moody’s, the ratings agency said late Friday, citing “heightened unpredictability in policymaking amid a volatile domestic political landscape.”
Moody’s announcement comes in the aftermath of a dramatic week in the U.K. that saw Liz Truss resign as prime minister on Thursday. The agency joins S&P and Fitch who earlier downgraded the country’s outlook to negative.
“The first driver of the change in outlook to negative is the increased risk to the U.K.’s credit profile from the heightened unpredictability in policymaking amid a volatile domestic political landscape, which challenges the U.K.’s ability to manage the shock arising from weaker growth prospects and high inflation,” Moody’s said.
“The evolution of policymaking, and the U.K. government’s ability to engender confidence in its commitment to fiscal prudence, will be a material consideration” as Moody’s evaluates its rating, the agency said. Moody’s affirmed the country’s credit rating at Aa3.
Moody’s said its maintaining of the rating “reflects the U.K.’s economic resilience supported by its wealthy, competitive and diversified economy.”
“Despite the weakening in fiscal policy predictability in recent years, the country’s long-standing institutional framework remains strong and will continue to support the U.K.’s ability to respond to shocks, as seen during the pandemic,” the agency said.
The credit rating is a marker of how likely a government is to pay back debts and affects how much it costs the government to borrow money in the international financial markets — a lower credit rating in theory means higher interest rates.