Chancellor Jeremy Hunt has vowed to do ‘whatever necessary’ to bring the situation under control (Picture: Getty /Reuters)
Chaos at No 10 has led to the UK’s economic outlook being downgraded from ‘stable’ to ‘negative’.
Ratings agency Moody’s cited political instability and high inflation as the two major reasons behind the shift.
The news comes as Chancellor Jeremy Hunt vowed to do ‘whatever necessary’ to bring the country’s finances under control.
Official figures had revealed that government borrowing swelled to £20 billion in September.
In a report published on Friday night, Moody’s said the change in the UK’s economic outlook was driven by ‘heightened unpredictability in policymaking amid weaker growth prospects and high inflation’.
Experts added that ‘risks to the UK’s debt affordability from likely higher borrowing and risk of a sustained weakening in policy credibility’.
Rating agencies rate a country on the strength of its economy and provide governments with a score based on the likelihood that they will be able to pay back debt.
The rating affects how much it costs governments to borrow money in the international financial markets.
Jeremy Hunt vowed to do ‘whatever necessary’ to bring the country’s economy under control (Picture: REUTERS)
According to the agency, an outlook period ‘typically lasts 12-18 months’.
However, while the UK’s economic outlook has been graded as ‘negative’, Moody’s credit rating for the UK remains unchanged.
The agency said this rating reflects the UK’s economic resilience ‘despite the weakening in fiscal policy predictability in recent years’.
The company added: ‘The country’s long-standing institutional framework remains strong and will continue to support the UK’s ability to respond to shocks, as seen during the pandemic. Furthermore, the structure of the UK government debt, with a very long average maturity of around 15 years, as well as a deep domestic investor base adds a degree of resilience to the credit profile in the face of shocks.’
Inflation has jumped in the face of the UK’s cost of living crisis (Picture: PA)
The Office for National Statistics (ONS) reported that a jump in debt interest grew borrowing beyond the expectations of economists, laying bare the challenge facing the Chancellor and new prime minister ahead of the fiscal event at the end of this month.
The latest reading for borrowing, excluding state-owned banks, marked the second-highest September on record, only surpassed during the height of the Covid-19 pandemic, the ONS said.
Mr Hunt, vowing to bring finances under control, said: ‘Strong public finances are the foundation of a strong economy.
‘To stabilise markets, I’ve been clear that protecting our public finances means difficult decisions lie ahead.
‘We will do whatever is necessary to drive down debt in the medium term and to ensure that taxpayers’ money is well spent, putting the public finances on a sustainable path as we grow the economy.’
The recently appointed Chancellor has already reversed a number of key financial policies announced last month by predecessor Kwasi Kwarteng, including plans to scrap the increase in corporation tax to 25%.
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Chaos at No 10 has led to the UK’s economic outlook being downgraded from ‘stable’ to ‘negative’.