London: Moody’s rating agency downgraded the UK’s debt rating on Friday due to the major economic hit of the coronavirus crisis, Brexit and the lack of clear budget plans by Prime Minister Boris Johnson’s government.
Moody’s downgrades ‘Aa3’ to ‘Aa2’, which puts Britain on the same level as Belgium and the Czech Republic.
The world’s sixth-largest economy shrank the most among the Group of Seven countries in the second quarter, with its government debt 2 billion pounds ($ 2.58 billion) higher than 100% of gross domestic product.
Moody’s said Britain’s growth was “significantly weaker than expected and likely to remain so in the future”. Britain has experienced a sharper contraction from peak to trough than any other Group of 20 economy due to the severity of its COVID-19 outbreak, the size of its service sector, hampered by social distance rules and the risk of further outbreaks. said.
The downgrade was another blow to Johnson, who is under fire from opposition parties and lawmakers in his Conservative party for his handling of the pandemic, which killed more people in Britain than anywhere else in Europe.
Moody’s said Britain’s failure to reach a broad trade agreement with the EU would increase the damage done by COVID-19.
Johnson said earlier on Friday that there was currently no point in continuing the trade negotiations.
“Even if there is a trade agreement between the UK and the EU by the end of 2020, it will probably be limited,” Moody’s said.
It also said that Britain had lost budgetary discipline and that high debt levels were unlikely to fall rapidly.
“The UK effectively has no fiscal policy anchor,” he said.
Expenditure on spending would probably be politically difficult and tax increases could stifle economic recovery.
The British government responded by saying it had no choice but to supplement spending to mitigate the impact of the pandemic.
“Over time and as the economy recovers, the government will take the necessary steps to ensure the long-term health of public finances,” a Finance Ministry spokesman said.
Moody’s revised the outlook on the country’s sovereign debt to ‘stable’ from ‘negative’. The downgrade places the Moody’s rating at the same level as Fitch’s, while Standard & Poor’s rates the country higher.
Source: Gulf News