Britain downgraded by Moody's on Brexit concerns

A woman attends an anti Brexit demonstration in Trafalgar Square in London Britain

A woman attends an anti Brexit demonstration in Trafalgar Square in London Britain

Ratings agency Moody's has downgraded the UK's credit rating as Brexit threatens to slow economic growth.

Credit rating agencies, in essence, rate a country on the strength of its economy - scoring governments or large companies on how likely they are to pay back their debt.

"The assessments made about Brexit in this report are outdated", a government spokesperson said in a statement provided by the finance ministry.

This was linked partly to an economic slowdown already under way, but also reflected increased political pressure on the ruling Conservative Party to raise spending after seven years of fiscal belt-tightening, Moody's said.

"More recently, the government has yielded to pressure and raised spending in several areas, including for health and adult social care".

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Brexit was likely to dominate the legislative process for the foreseeable future, making any innovative legislation needed to help public services without increasing budgets unlikely. As a result, the budget deficit was likely to remain at around 3-3.5 percent of GDP in the coming years, higher than the government's plans to cut it below 1 percent of GDP by 2021/22.

Moody's downgraded Britain's sovereign rating by one notch last night, to AA2, over what it called weakening public finances and rising debt.

Spurred by the pound's sharp depreciation after the Brexit vote a year ago, accelerating inflation has squeezed consumer spending, one of the key drivers of the United Kingdom economy, causing it to slow visibly in recent months. Moody's said it was no longer confident that Britain would secure a replacement free trade agreement with the European Union which substantially mitigated the Brexit hit. Britain's government said Moody's move brought it into line with the other major credit ratings agencies, Fitch and Standard & Poor's.

Moody's changed its outlook on the country from negative to stable, meaning another downgrade is not imminent.

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