(Adds comment from finance ministry spokesman, political and economic details)
October 16 (Reuters) – The Moody’s downgraded the UK’s debt rating on Friday following a major economic shock from the coronavirus, Brexit crisis and a lack of clear budget plans by Prime Minister Boris Johnsons’s government.
Moody’s downgraded the rating to Aa3 from Aa2, putting Britain on par with Belgium and the Czech Republic.
The world’s sixth largest economy shrank from the largest among the Seven Nations in the second quarter, and its public debt exceeded 2 2 billion ($ 2.58 billion), exceeding 100% of gross domestic product .
Moody’s said Britains growth was significantly weaker than expected and is likely to remain so in the future.
Britain faced a sharper contraction than any other G20 economy due to the severity of its COVID-19 explosion, the size of its services sector, hit by social distance rules and the risk of further explosions. , she said.
The downgrade was another blow to Johnson who is under fire from opposition parties and lawmakers in his Conservative Party for tackling his pandemic, which has killed more people in Britain than anywhere else in Europe.
Moody’s said Britains’ failure to reach a comprehensive trade deal with the EU would complicate the damage caused by COVID-19.
Johnson said earlier Friday that there was currently no point in continuing trade negotiations.
Even if there is a trade agreement between the UK and the EU by the end of 2020, it is likely to be close in scope, Moodys said.
He also said Britain had lost budgetary discipline and its high debt levels were unlikely to subside quickly.
The UK effectively has no fiscal policy anchor, she said.
Spending cuts are likely to be politically difficult, and tax increases could stifle economic recovery.
The Britains government responded by saying there was no choice but to increase spending to mitigate the impact of the pandemics.
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 country’s sovereign debt forecast to stable from negative. The rating downgrade puts Moody’s rating at the same level as Fitchs while Standard & Poors rates the country at a higher level. ($ 1 = 77 0.7744) (Reporting by Aditi Sebastian in Bengaluru and William Schomberg in London Edited by Devika Syamnath and Matthew Lewis)
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