UK’s Credit Rating Improves from ‘Negative’ to ‘Stable’

Influential credit rating agency, Moody’s, has changed its assessment of the UK from ‘negative’ to ‘stable’, providing a much-needed boost to its economy. Moody’s new rating of the UK has seen it rise to Aa3 status, the fourth-highest rating it offers.

Moody’s is one of the ‘big three’ credit rating agencies alongside Standard and Poor’s and Fitch. Each regularly analyse the likelihood of different countries being able to repay their debts. They base these findings on a number of factors including the current strength of a country’s economy and the stability of its government. The UK had previously enjoyed an AAA rating (the highest that Moody’s lists) for 35 years between 1978 and 2013, but had seen its borrowing risk rise in the eyes of lenders over recent years.

2022 saw the UK’s credit rating sink further still, but U-turns by the government to reverse most of the tax cuts they’d previously announced have been welcomed by credit rating agencies. Moody’s claim that “policy predictability has been restored after heightened volatility last year around the mini-budget”. They added that “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.”

Better relations with the EU

Despite the UK’s current inflation rate of 6.7 per cent being the highest among all major advanced economies, Moody’s have pointed to a “more conciliatory” approach to trading with the EU as one of the aspects that might inspire more confidence in its economy. The report suggests that Brexit has hampered the UK’s efforts to slow inflation by holding back business investment, but that a better relationship with the EU could help its economic regrowth.

The report highlights the signing of a “much-delayed memorandum of understanding with the EU on regulatory co-operation in financial services” as part of its rationale in deciding upon the improved credit rating. Another agreement with the continent on the UK’s role in the Horizon Europe funding programme is seen as “important for the country’s scientific, industrial and academic sectors”.

The view of other credit rating agencies

Standard and Poor’s had already rescinded its negative rating of the UK in April this year, and has since affirmed the UK’s ‘AA’ rating after Moody’s report was released. Their report explained that “the UK economy has so far evaded recession, despite multiple headwinds including elevated inflation, a rapid tightening of monetary policy and credit conditions, as well as a comparatively weak external outlook”.

Moody’s latest report has only bolstered Standard and Poor’s assertion that despite some volatility seen throughout the last 12 months, it believes that “the outlook is stable”. The third of the big three credit rating agencies, Fitch still shows a negative rating of the UK, but is due to reassess its rating in December. It’s hoped that another increase in the UK’s credit rating will lower the interest rates paid on any borrowing needed for the future.

What this means for UK businesses

This would be good news for UK businesses, many of whom are already struggling to absorb higher operating costs due to record inflation rates and spiralling utility bills. Another decrease in credit rating may have had the potentially dire consequence of UK banks being even more stringent on lending and upping interest rates yet higher.

Having the UK’s credit rating listed as ‘stable’ may also convince more risk-averse investors to look towards British businesses as an option when deciding where to put their money. This could perhaps see more overseas investors look to add shares of FTSE-listed companies to portfolios when previously they may have been spooked by negative reports of instability.

Is your business in danger of defaulting on its loans?

High inflation and large interest rates have had a negative effect on many businesses. If your company has found the current economic landscape challenging, it’s a good idea to get in touch with us before the situation becomes unmanageable. We’ve helped countless companies to navigate difficult financial situations with our years of experience in business recovery.

If you need to get some advice on what you can do to get back on track our advisers are here for some free, no-obligation advice, just call us on 0800 975 0380 or email [email protected]