Moody’s Upgrades UK Outlook to Stable
Moody’s has upgraded the United Kingdom’s outlook from “negative” to “stable,” stating that policy predictability has been reinstated following increased volatility surrounding the so-called mini-budget under Liz Truss last year.
A year has passed since the last time the ratings agency Moody’s revised its outlook for the United Kingdom when Truss’s resignation followed a series of tax pledges in her mini-budget that alarmed markets.
Chancellor Jeremy Hunt to Deliver Autumn Statement
Rishi Sunak promised to restore economic stability to the United Kingdom and reversed those policy decisions. Parliament will hear Autumn Statement 2023 from Chancellor Jeremy Hunt on November 22, 2023.
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“After increased volatility last year surrounding the mini-budget, policy predictability has been restored,” the ratings agency said, reiterating the nation’s ‘Aa3’ rating.
“Although structural spending pressures and relatively high inflation will pose risks to the government’s ability to fully implement its fiscal plans, Moody’s continues to anticipate a gradual tightening of fiscal policy in the coming years,” the report continued.
Concerns About High Inflation and Economic Growth
The United Kingdom had the highest inflation rate of any major advanced economy in the year leading up to September, at 6.7%, and the International Monetary Fund predicted last week that its economy would expand by only 0.5% in the coming year, the slowest rate among the G7.
September saw the first monthly decline in the cost of food and non-alcoholic beverages in two years negated by increased fuel prices, further placing strain on households.
Inflation has surged over the past 18 months or so, as evidenced by the consumer price index reaching an all-time high of 11.1 percent in October.
In the first half of the fiscal year, the United Kingdom borrowed £81.7 billion, an increase of £15.3 billion compared to the period from April to September 2022, but a decrease of approximately £20 billion from the government’s estimate in March.
The Office for Budget Responsibility, which is responsible for the projections, stated that faster-than-anticipated inflation and wage growth contributed to higher cash tax revenue.
However, according to Chancellor Jeremy Hunt, the improved budget outcome does not permit the tax cuts that a significant number of Conservative Party members desire to bolster their political standing following recent electoral defeats.
Hunt predicted on Sunday that higher interest rates would cause debt servicing expenses to increase by £20 billion to £30 billion annually, and he deemed the borrowing cost increase “clearly unsustainable.”
Standard and Poor’s lifted the ‘negative’ label it had previously attached to the UK’s sovereign credit rating subsequent to Truss’s mini-budget in April, thereby revising its outlook.
S&P reaffirmed its AA rating and benign outlook for the United Kingdom on Friday.
Bank of England’s Battle Against Inflation
Despite concerns that it was proving difficult to surpass, Bank of England (BoE) Governor Andrew Bailey lauded “quite encouraging” progress in the fight against inflation this week.
Bailey expected that decreasing energy expenditures would cause a “noticeable drop” in the headline rate in October.
On November 2, the BoE’s Monetary Policy Committee will convene to ascertain whether interest rates in the United Kingdom will remain unchanged, rise, or decline. The BoE maintained its interest rate at 5.25 percent last month.
With the narrowest conceivable margin of 5-4, the MPC voted to maintain the current cost of borrowing.
