Moody’s reaffirms UK’s AA3 rating, but changes forecast to negative – 10/21/2022

Moody’s reaffirmed the UK’s AA3 rating on Friday, but changed the outlook to negative from stable. The rating agency said in a statement that the primary driver of the change was “the increased unpredictability in policymaking amid a volatile domestic political landscape, which challenges the country’s ability to manage the shock caused by stronger growth prospects.” Low and high inflation.

“Moody’s views the September 23 tax return, along with the subsequent reversal of most announced measures and the upcoming change of prime minister, as a continuing reflection of the poor predictability of fiscal policy-making in previous years,” it highlights, in a report released this Friday. .

The second factor is “the additional risk to UK debt sustainability due to potentially high borrowing and the risk of persistent inflation. The continued erosion of UK political credibility could also lead to higher borrowing costs”. In the medium term.

According to the agency, policy development and the UK government’s ability to build confidence in its commitment to financial prudence will be an important consideration for Moody’s to change the negative outlook.

On the other hand, Moody’s notes that the affirmation of the AA3 rating reflects “the economic resilience of the United Kingdom underpinned by its rich, competitive and diversified economy”.

“Despite the poor predictability of fiscal policy in recent years, the country’s long-term institutional framework remains robust and will continue to support the UK’s ability to respond to shocks, as we have seen during the pandemic. For the UK government, over the very long term average, About 15 years, plus a deep base of local investors, adds a degree of resilience to the credit profile in the face of shocks,” the agency defends.