Moody’s rating agency downgraded UK’s credit rating to Aa2 from Aa1 – despite Theresa May’s announcements that United Kingdom’ s economy would remain strong and stable. The Agency also changed the long term outlook for UK from negative to stable. The decisions struck the value of pound sterling.
Public finances weakening and Brexit
According to the press release published at the Agency’s official website (www.Moodys.com),the key drivers for the decision to lower the United Kingdom’s ratings are in particular:
- weakening public finances due to economical slowdown under way and political and social pressures to raise spending,
- erosion of the UK’s medium – term economic strength resulting from the manner the UK is leaving the European Union.
The Moody’s experts are clearly of an opinion that leaving the EU Single market may negatively influence the United Kingdom’s mid-term economic growth. Moreover, the Agency seems to doubt whether the UK will be able to secure a free-trade agreement with the EU that would mitigate the negative effects of the Brexit.
Outlook stable but the sterling falling
According to Moody’s UK should though overcome the negative economic effects of Brexit as some kind of free-trade agreement between the UK and EU is likely to be concluded as being in the best interest of both parties. Therefore, the UK’s long term economic outlook was changed from negative to stable.
The Agency’s decision seem to have struck the value of sterling which has been falling since 22 September (day of the rating’s downgrade publication) and is now around $ 1,33 and EUR 0,87.