Moody's Downgrades UK's Credit Rating Outlook to 'Negative'

S&P Also Downgrades Rating Outlook at the End of Last Month

British Prime Minister Liz Truss announced her resignation on the 20th (local time) at 10 Downing Street, the Prime Minister's residence in London. (Photo by EPA) [Image source=Yonhap News]

[Asia Economy Reporter Yujin Cho] The international credit rating agency Moody's has downgraded the outlook on the United Kingdom's sovereign credit rating from 'stable' to 'negative.'

According to BBC on the 22nd (local time), Moody's downgraded the UK's sovereign credit rating outlook the day before, citing high political instability and inflation in the UK.

Moody's stated that "there is a risk to the UK's debt repayment capacity," but maintained the UK's sovereign credit rating itself at 'Aa3,' which is the fourth highest level in Moody's rating scale.

Moody's referred to the recently resigned Prime Minister Liz Truss's hasty announcement and subsequent withdrawal of a large-scale tax cut plan, pointing out that "this clearly reflects the decreased predictability of UK policy over the past few years."

Moody's analysis indicated that due to the significant erosion of market confidence in the UK government during this process, simply withdrawing the policy could not reverse the situation.

Moody's also explained that the decision to downgrade the outlook was based on factors such as the possibility of increased borrowing costs and the deterioration of debt repayment capacity due to additional inflation risks.

After Prime Minister Truss resigned the day before, the yield on the UK's 30-year government bonds briefly fell by 0.44 percentage points to 3.86%, suggesting a recovery from the turmoil triggered by the tax cut plan, but BBC reported that it has since risen again above 4%.

Meanwhile, Standard & Poor's (S&P) maintained the UK's sovereign credit rating at 'AA,' the third highest among S&P ratings, even after Prime Minister Truss's resignation announcement.

S&P had previously downgraded the UK's rating outlook from 'stable' to 'negative' at the end of last month after financial markets fluctuated due to the tax cut plan's impact.