Moody’s has decided to downgrade the UK bond rating from Aaa to Aa1. Moody’s justification for the downgrade includes three factors, the first of which is “sluggish” growth:
1. 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;
2. 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;
3. 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.
Moody’s said the UK’s new rating has a stable outlook, meaning no change (up or down) is anticipated in the next 12-18 months. In what it calls a “related ratings action” Moody’s also downgraded the Bank of England one notch to Aa1.