Britain downgraded by Moody’s on Brexit concerns

British Prime Minister Theresa May delivers her speech in Florence, Italy, on Friday.

Britain’s credit rating was downgraded on Friday night by Moody’s Investors Service, with the rating agency citing the impact of the country’s planned departure from the European Union.

Just hours after U.K. Prime Minister Theresa May outlined the country’s Brexit plans to an audience in Florence, Italy, Moody’s cut the U.K.’s rating to Aa2 from Aa1, though it upgraded the outlook to stable from negative.

Read: FTSE 100 pivots to end higher as pound weakens after May’s Brexit speech

The rating agency said the country’s public finances outlook has weakened significantly, “with the government’s fiscal consolidation plans increasingly in question and the debt burden expected to continue to rise.”

Both the “manner of its departure from the European Union” as well as the “increasingly apparent challenges to policy-making given the complexity of Brexit negotiations and associated domestic political dynamics” will weigh on its fiscal situation, Moody’s added.

The rating agency noted the U.K. has found it difficult to implement spending cuts, while at the same time, had to increase spending in Northern Ireland as part of a deal to get a working parliamentary majority.

Brexit meanwhile is weighing on the country’s economy. “Private consumption has slowed sharply and business investment has been weak since 2016, most likely linked to the Brexit-related uncertainty. While future years may see some recovery, Moody’s expects growth of just 1% in 2018 following 1.5% this year and 2.25% on average in recent years,” the rating agency said.

Moody’s is no longer confident that the U.K. government will be able to secure a replacement free-trade agreement with the EU which substantially mitigates the negative economic impact of Brexit.

Britain not surprisingly disagreed with the report.

“The assessments made about Brexit in this report are outdated,” a government spokesperson said, according to Reuters.

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