Moody’s changes United Kingdom to negative

Moody's Investors Service said it changed the outlook on the United Kingdom's long-term issuer and debt ratings to negative from stable. Both ratings were affirmed at Aa1.

The action reflects the following key drivers:

• The majority vote in favor of leaving the European Union (EU) (Aaa, stable) in the referendum held on June 23 will herald a prolonged period of uncertainty for the U.K., with negative implications for the country's medium-term growth outlook. During the several years in which the U.K. will have to renegotiate its trade relations with the EU, Moody's expects heightened uncertainty, diminished confidence and lower spending and investment to result in weaker growth. Over the longer-term, should the U.K. not be able to secure a favorable alternative trade arrangement with the EU and other countries, the U.K.’s growth prospects would be materially weaker than currently expected;

• While the U.K.’s institutional framework will not change, Moody's considers that policy predictability and effectiveness of economic policy-making – an important aspect of institutional strength – might be somewhat diminished as a consequence of the vote. The U.K. government will not only need to negotiate the U.K.’s departure from the EU but will likely also aim to embark on significant changes to the U.K.’s immigration policy, broader trade policies and regulatory policies. While the agency considers the U.K.’s institutional strength to be very high, the challenges for policymakers and officials will be substantial; and

• As a consequence of the weaker GDP growth outlook and institutional strength, the U.K.’s public finances will also likely be weaker than Moody's assumed so far. In the agency’s view, the negative effect from lower economic growth will outweigh the fiscal savings from the U.K. no longer having to contribute to the EU budget. The U.K. government has one of the largest budget deficits among advanced economies, and lower GDP growth will further complicate the implementation of the government's multi-year fiscal consolidation plan. Consequently, the public debt ratio will likely remain higher than the rating agency previously expected.

Moody's also changed the outlook to negative for the Aa1 rating of the Bank of England from stable. The Aa1/P-1 ratings were affirmed. The U.K.’s long-term and short-term foreign and local-currency bond and deposit ceilings remain unchanged at Aaa/ P-1.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.