Moody's Investors Service downgraded Britain's rating to Aa2 from Aa1 and changed the outlook to stable from negative, saying Friday it sees weakened prospects for public finances as well as a likely Brexit-linked economic slowdown ahead.
The outlook for the U.K.'s public finances has deteriorated significantly in recent months, with the government's fiscal consolidation plans increasingly in question, Moody's said.
This was linked partly to an economic slowdown already under way, but also reflected increased political pressure on the ruling Conservative Party to raise spending after seven years of fiscal belt-tightening, Moody's said.
The U.K.'s fiscal position is set to deteriorate further as a result of its exit from the European Union, a move that will likely hurt the country's economy in the medium term, Moody's said.
Spurred by the pound's sharp depreciation after the Brexit vote last year, accelerating inflation has squeezed consumer spending, one of the key drivers of the U.K. economy, causing it to slow visibly in recent months.
Proponents of Brexit have suggested that the pound's decline could boost overseas demand for British products, strengthening the manufacturing industry and decreasing the economy's reliance on domestic demand. But so far, the economy has showed little sign of that shift.
Quarterly growth stood at 0.3% in the April-June period, a slight improvement on the preceding quarter, but still less than half the pace of growth at the end of last year.
Write to Wiktor Szary at Wiktor.Szary@wsj.com
(END) Dow Jones Newswires
September 22, 2017 18:30 ET (22:30 GMT)