UK economic outlook slashed to ‘negative’

Ratings agency Moody's cited inflation and London’s unpredictable policymaking for the downgrade

The UK government's rating outlook was cut to “negative” from “stable” on Friday by Moody's ratings agency.

In a statement, the agency pointed to the “heightened unpredictability in policymaking amid a volatile domestic political landscape, which challenges the UK's ability to manage the shock arising from weaker growth prospects and high inflation”. 

Moody’s reassessment follows the resignation of British Prime Minister Liz Truss on Thursday after just six weeks in office. Her cabinet had pledged huge tax cuts without explaining how they would be funded, leading to a spike in government borrowing costs. The new chancellor, Jeremy Hunt, reversed most of the tax cuts, but according to Moody’s, there is still a “risk of a sustained weakening in policy credibility”. 

Friday’s “negative” outlook assessment does not mean the UK's credit rating has been downgraded, but indicates that it could be downgraded later on. An outlook period typically lasts 12-18 months, Moody’s says.

Two other ratings agencies, S&P and Fitch, also earlier lowered the UK’s outlook to negative.

READ MORE: UK inflation could surge to 15% – Bloomberg

Britain is grappling with a cost of living crisis, with inflation in September rising 10.1% year-on-year, according to estimates published earlier this week by the Office for National Statistics. The latest figure matches the 40-year high in the British consumer price index, reached in July.

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