Moody's Downgrades UK Credit Rating to Aa3... Below South Korea (Summary)

"Brexit Concerns, Economic Strength and Fiscal Capacity Weakened by COVID Impact"

Boris Johnson, Prime Minister of the United Kingdom [Image source=Yonhap News]

[Asia Economy Reporter Eunbyeol Kim] The international credit rating agency Moody's has downgraded the United Kingdom's sovereign credit rating from 'Aa2' to 'Aa3'. The downgrade is due to the deterioration of economic strength and fiscal capacity caused by concerns over Brexit (the UK's withdrawal from the European Union (EU)) and the shock brought by the novel coronavirus disease (COVID-19).

On the 16th (local time), Moody's stated in a press release, "The UK's economic strength has weakened compared to when the sovereign credit rating was downgraded to Aa2 in September 2017," adding, "The growth outlook has weakened significantly compared to previous expectations, and this condition is expected to persist."

The growth slowdown is anticipated due to Brexit, and the UK has yet to conclude a trade agreement to replace the benefits of EU membership.

On the same day, the UK announced that trade agreement negotiations with the EU have effectively ended, increasing the possibility of a 'No Deal' scenario. This means the UK would leave the EU without any agreement.

According to BBC, a spokesperson for the UK Prime Minister's Office said at a regular briefing, "Trade agreement negotiations are over," and pointed out, "By stating at yesterday's (EU summit) that they will not change their position on negotiations, the EU has effectively ended them." He emphasized that unless the EU presents fundamental changes, there is no reason to continue talks.

Earlier, the EU announced that Michel Barnier, the chief negotiator for Brexit, and the negotiation team would continue additional discussions in London next week.

However, the Prime Minister's Office spokesperson said that Barnier only needs to come to London if he is prepared to accelerate issue discussions based on legal documents without demanding all concessions from the UK. Without a change in the EU's stance, further discussions are meaningless, and the UK is ready for a complete break without an agreement. Before the spokesperson's briefing, UK Prime Minister Boris Johnson warned in a televised statement that without further concessions, the UK would completely sever ties with the EU without a free trade agreement (FTA).

Moody's forecasted, "Even if a trade agreement between the UK and the EU is concluded by the end of this year, its scope is likely to be narrow. Therefore, downward pressure on private investment and the economy due to Brexit will continue."

With this downgrade, the UK's sovereign credit rating has fallen one notch below South Korea's (Aa2). The UK's credit rating is now the same as Taiwan, Qatar, Hong Kong, Belgium, and Macau.

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