MercoPress. South Atlantic News Agency

Brexit-era paralysis: Moody's downgrades UK's debt to negative

Britain's “economic and fiscal strength are likely to be weaker going forward and more susceptible to shocks than previously assumed,” Moody's said in a statement.

Moody's on Friday downgraded the outlook for Britain's debt, citing mounting policy challenges amid the Brexit debate. The agency cut the outlook to negative from stable but kept the debt at the investment-grade Aa2.

The ratings agency Fitch had similarly put Britain on “negative watch” in February.

Pointing to “paralysis that has characterized the Brexit-era policymaking process,” Moody's said London has “struggled to cope with the magnitude of policy challenges that they currently face.”

In addition, Britain's “economic and fiscal strength are likely to be weaker going forward and more susceptible to shocks than previously assumed,” Moody's said in a statement.

Britons voted by 52 per cent to leave the European Union in a 2016 referendum, but MPs have been divided over how, when and even if that result should be delivered.

The political wrangling has forced two successive Conservative governments to ask the European Union to delay Brexit three times this year. It is now set for January 31.

Current Tory Prime Minister Boris Johnson hopes the snap election next month will give him a majority in the House of Commons to allow him to ratify his exit terms and finally leave the EU.

“Over the longer term, institutional weakening may also impact the UK's economic strength, through its effect on the investment climate and on the UK's attractiveness to skilled and unskilled foreign labor,” Moody's said.

“In recent years, we have already seen the negative impact this can have, and Moody's expects this negative influence will likely endure as the exit process continues and uncertainties persist during the subsequent phase of trade negotiations with the EU and with other nations.”

Britain remains highly indebted and this was unlikely to change in the next three to four years, according to Moody's.