- Ratings agency Moody’s has revised the UK’s outlook to ‘stable’ from ‘negative’
- Moody’s last changed its outlook for the UK one year ago amid Truss budget
Moody’s has revised the UK’s outlook to ‘stable’ from ‘negative’, claiming policy predictability had been restored after heightened volatility last year around the so-called mini-budget under Liz Truss.
Ratings agency Moody’s last changed its outlook for the UK one year ago, when Truss’s mini-budget spooked markets with tax pledges, culminating in her resignation.
Rishi Sunak reversed those policy decisions and pledged to restore the UK’s economic stability. Chancellor Jeremy Hunt will present the Autumn Statement 2023 to parliament on 22 November.
‘Policy predictability has been restored after heightened volatility last year around the mini-budget,’ the ratings agency said, affirming the country’s rating at ‘Aa3.’
It added: ‘While structural spending pressures and relatively high inflation will pose risks to the government’s ability to fully deliver on its fiscal plans, Moody’s still expects fiscal policy to gradually tighten over the coming years.’
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UK inflation, at 6.7 per cent in the year to September, is the highest of any major advanced economy and last week the International Monetary Fund forecast its economy would grow just 0.5 per cent next year, the weakest in the G7.
Higher fuel costs offset the first monthly fall in the price of food and non-alcoholic beverages for two years in September, continuing to pile pressure on households.
An inflation spike has hit over the last 18 months or so, with the consumer price index rate peaking in October at 11.1 per cent.
The UK government borrowed £81.7billion in the first half of the fiscal year, which is £15.3billion more than between April and September 2022, but around £20billion less than the government forecast in March.
The Office for Budget Responsibility, which is in charge of the forecasts, said tax revenue had been higher in cash terms due to faster than expected inflation and pay growth.
But Chancellor Jeremy Hunt has said the better budget outcome does not allow scope for the tax cuts which many in his Conservative Party want to boost their standings in the wake of recent electoral defeats.
Hunt said on Sunday that debt servicing costs were likely to rise by £20billion to £30billion a year due to higher interest rates, and described the rise in borrowing costs as ‘clearly not sustainable.’
Standard and Poor’s has already revised up its outlook for the UK’s sovereign credit rating in April, removing the ‘negative’ label they applied after Truss’s mini-budget.
On Friday S&P affirmed its AA rating and stable outlook for the UK.
This week, Bank of England (BoE) governor Andrew Bailey hailed ‘quite encouraging’ progress in the fight against inflation despite fears that it was proving hard to beat.
Bailey said he expected a ‘noticeable drop’ in the headline rate when October’s figures are published next month due to lower energy bills.
The BoE’s Monetary Policy Committee will be meeting on 2 November to determine whether UK interest rates will stay put, increase or fall. Last month, the BoE left its interest rate unchanged at 5.25 per cent.
The MPC voted 5-4, the narrowest possible margin, to leave the cost of borrowing unchanged.
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