Image source, Getty Images
By Ben King
Business reporter, BBC News
The influential Moody’s credit rating agency has dropped its negative outlook on the UK, saying that “policy predictability has been restored” following last year’s mini-Budget.
It follows S&P, which dropped its negative outlook in April.
Moody’s also noted the UK’s “more conciliatory” approach to EU trade.
Credit ratings agencies assess how likely a country is to repay its debts, based on the strength of the economy and the effectiveness of government.
Moody’s said that Chancellor Jeremy Hunt’s decision to reverse most of his predecessor’s tax cuts helped to inform its decision.
It said increased friction due to Brexit had slowed the UK’s bid to reduce inflation, which it sees returning to its 2% target in 2026.
It said greater co-operation with the EU may reduce Brexit-related uncertainty and boost the UK’s economic growth.
The three main credit ratings agencies cut their assessments of the UK’s creditworthiness in the wake of the disastrous mini-Budget last September, which included £45bn of unfunded tax cuts, without forecasts from the government’s spending watchdog, the OBR.
Lower credit ratings reflect a higher risk, which usually means borrowers will have to pay higher interest rates.
Aa3 is the fourth-highest rating on Moody’s scale – which means debts are “very high quality and subject to very low credit risk”. Moody’s gave the UK the highest-possible rating of AAA from 1978 to 2013, until it was downgraded while George Osborne was chancellor.
S&P removed its negative outlook on the UK in April, and gives the country an AA rating, the third-highest level on its scale.
The third rating agency, Fitch, still has a negative outlook on the UK – it will publish its next assessment on 1 December.