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    Moody's Downgrades UK Govt Rating Over Brexit

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    LONDON (Sputnik) - Credit rating agency Moody's has downgraded the outlook on the UK government's Aa2 rating from stable to negative, citing erosion of institutional strength caused by Brexit among reasons for the move.

    "Moody's Investors Service ("Moody's") has today changed the outlook on the Government of the United Kingdom's Aa2 ratings to negative from stable [...] The change in outlook to negative from stable is driven by two factors: 1. UK institutions have weakened as they have struggled to cope with the magnitude of policy challenges that they currently face, including those that relate to fiscal policy. 2. The UK's economic and fiscal strength are likely to be weaker going forward and more susceptible to shocks than previously assumed," the agency wrote in a statement on Friday, adding that "Brexit has been the catalyst for this erosion in institutional strength".

    "The outlook on the Bank of England's Aa2 issuer and senior unsecured bond ratings and the (P)Aa2 on its senior unsecured MTN programme has also changed to negative from stable; the Aa2 and (P)Aa2 ratings have been affirmed. The short-term issuer ratings have been affirmed at Prime-1", the agency added.

    Still, the agency affirmed the UK government's Aa2 rating.

    "The factors supporting the affirmation of the UK's Aa2 sovereign rating include economy's significant strength, which is a function of its large size, diversification, and flexibility. The government also enjoys very low financing risks and a very high average debt maturity. While the UK's institutions have weakened, in part due to the serious challenges raised by Brexit, they remain strong in comparison to global peers and the monetary policy framework and central banking arrangements continue to be excellent", the statement explained.

    In September 2017, the agency changed the United Kingdom's long-term issuer rating from Aa1 to Aa2 with a stable outlook. Moody's then cited uncertainty and challenges to policy-making due to the complexity of UK-EU Brexit talks and domestic political dynamics related to it.

    Earlier this week, the Bank of England said in a monetary policy report that British economic growth in 2019 would halve year-on-year over Brexit uncertainty and the slowdown of other economies.

    On 6 November, Chancellor Sajid Javid was due to present an autumn budget speech, which traditionally contains fresh economic forecasts, but the plans were canceled over the looming snap election in December.

    UK citizens voted to leave the European Union in 2016. Brexit was originally scheduled for late March, but UK lawmakers failed to endorse the deal agreed upon by London and Brussels, so the deadline was moved to 31 October.

    Former UK Prime Minister Theresa May was forced to step down due to her failure to deliver the withdrawal. Her successor, Boris Johnson, has affirmed that the country would leave the European Union by the October deadline, which subsequently was moved to 31 January after the UK parliament failed to ratify the updated divorce deal.

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    economy, instability, downgrade, rating, Moody's, United Kingdom, Brexit
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