The FTSE 100 index is trading around 0.6% in the red today after Moody’s downgraded the UK’s debt rating amid a rising debt.
Fundamental analysis: Growth “significantly slower”
The U.S. financial services company Moody’s downgraded the United Kingdom’s debt rating as a result of the huge blow the country’s economy took from the coronavirus pandemic, Brexit and because of no definite plans from the government.
The agency cut the rating to “Aa3” from “Aa2,” putting the U.K. on the same page with Belgium and the Czech Republic. It said Britain’s economic growth had been significantly slower and will likely remain that way.
Britain’s economy has seen the worst contraction among Group of 7 (G-7) in the second quarter, with its public debt reaching over 2 trillion pounds and transcending 100% of gross domestic product.
The U.K’s economy had the sharpest downfall among Group of 20 countries because of the level of severity of the coronavirus outbreak and the high risk of future outbreaks.
The reduction of U.K’s rating represents another hit for Boris Johnson’s administration that’s already being criticized by opposition parties and lawmakers in his party for his ways of dealing with the pandemic. More people have died in the U.K. from coronavirus than anywhere else in Europe.
Moody’s also said if Britain fails to strike an extensive trade deal with the European Union, it would increase the damage dealt by the pandemic.
On Friday, Boris Johnson said there was no reason to keep pursuing the trade negotiations.
“Even if there is a trade deal between the UK and EU by the end of 2020, it will likely be narrow in scope,” Moody’s commented.
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