Amid Political Turmoil, Moody's Downgrades UK's Ratings Outlook

The ratings agency Moody's has cut British government's ratings outlook from "stable" to "negative", due to "heightened unpredictability in policymaking amid a volatile domestic political landscape." These are exact words of the ratings agency.

Moody's isn't the first agency to downgrade UK's outlook to negative. S&P and Fitch have already downgraded UK's outlook to negative, Moody's is just joining them. UK has been witnessing political turmoil since months now.

A statement released by Moody's said that, "the first driver of the change in outlook to negative is the increased risk to the U.K.'s credit profile from the heightened unpredictability in policymaking amid a volatile domestic political landscape, which challenges the U.K.'s ability to manage the shock arising from weaker growth prospects and high inflation."

“The evolution of policymaking, and the U.K. government’s ability to engender confidence in its commitment to fiscal prudence, will be a material consideration" as Moody’s evaluates its rating, the agency added.

However it is worth flagging that the ratings agency affirmed the UK's credit rating at Aa3.

Moody's said it is maintaining the rating because of, "U.K.’s economic resilience supported by its wealthy, competitive and diversified economy."

The ratings agency said that, "despite the weakening in fiscal policy predictability in recent years, the country’s long-standing institutional framework remains strong and will continue to support the U.K.’s ability to respond to shocks, as seen during the pandemic."

The credit rating is an indicator of how likely a government is to pay back its debts. The credit rating affects how much it would cost the government to borrow money in the international financial markets — a lower credit rating in theory would lead to higher interest rates.