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May 6, 2021
BUSINESS

Moody’s downgrades UK’s government bond rating to Aa1 from Aaa

Moody’s Investors Service has downgraded the domestic- and foreign-currency government bond ratings of the United Kingdom by one notch to Aa1 from Aaa, a press release informs. The outlook on the ratings is now stable.The key interrelated drivers of today’s action are the continuing weakness in the UK’s medium-term growth outlook, with a period of sluggish growth which Moody’s now expects will extend into the second half of the decade; the challenges that subdued medium-term growth prospects pose to the government’s fiscal consolidation programme, which will now extend well into the next parliament;  and, as a consequence of the UK’s high and rising debt burden, a deterioration in the shock-absorption capacity of the government’s balance sheet, which is unlikely to reverse before 2016.At the same time, Moody’s explains that the UK’s creditworthiness remains extremely high, rated at Aa1, because of the country’s significant credit strengths. The stable outlook on the UK’s Aa1 sovereign rating reflects Moody’s expectation that a combination of political will and medium-term fundamental underlying economic strengths will, in time, allow the government to implement its fiscal consolidation plan and reverse the UK’s debt trajectory. Moreover, although the UK’s economy has considerable risk exposure through trade and financial linkages to a potential escalation in the euro area sovereign debt crisis, its contagion risk is mitigated by the flexibility afforded by the UK’s independent monetary policy framework and sterling’s global reserve currency status.In a related rating action, Moody’s has also downgraded the ratings of the Bank of England to Aa1 from Aaa. The issuer’s P-1 rating is unaffected by this rating action. The rating outlook for this entity is now also stable.

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