Ratings agency Moody’s has downgraded the UK’s credit rating as Brexit threatens to slow economic growth.
The country’s long-term issuer rating and senior unsecured bond rating were both cut from Aa1 to Aa2 – two notches below the US agency’s highest rating – on Friday.
Analysts said the outlook for the UK’s public finances had “weakened significantly” with Brexit likely to put further pressure on the country’s economic strength.
Moody’s said the Government’s plans to fix the public finances were increasingly in question and debt levels are expected to rise.
“Moody’s expects weaker public finances going forward, partly linked to the economic slowdown under way but also reflecting the increasing political and social pressures to raise spending after seven years of spending cuts,” it said in a statement.
“Moody’s believes that the UK government’s decision to leave the EU single market and customs union as of March 29 2019 will be negative for the country’s medium-term economic growth prospects.”
The agency also cut its rating for the Bank of England to Aa2 from Aa1, but revised the UK’s outlook to stable from negative, meaning a further downgrade is not imminent.
For Labour, shadow treasury chief secretary Peter Dowd said the downgrading was a “hammer blow” to the Government’s economic credibility.
“For the second time under the Tories the UK’s credit rating has been downgraded, and on this occasion citing their lack of faith in the Chancellor to meet his own spending targets as a result of unfunded spending commitments such as the deal with the DUP,” he said.
Liberal Democrat leader Sir Vince Cable said it was no coincidence the downgrading followed Theresa May’s keynote Brexit address in Florence.
“Despite Theresa May’s conciliatory tone we are no closer to knowing what our future relationship with the EU will be once any transitional deal expires,” he said.
“The warning that Moody’s have issued by downgrading the credit rating is that the economy will be weaker once the transitional deal comes to an end.
“All May has done is simply delay the economic pain caused by an extreme Brexit.”