The agency cited low interest rates and mortgage market competition as reasons for the downgrade.

Moody’s said the UK’s growth prospects had been affected by Brexit uncertainty, while low interest rates had weakened lenders’ profitability.

It said “persistently low interest rates and increased mortgage market competition” had dented net interest margins.

“The UK’s economy is weakening, making it more susceptible to shocks, and prolonged uncertainty over Brexit has reduced the country’s growth prospects,” said Laurie Mayers, associate managing director at Moody’s.

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“Persistently low interest rates and increased mortgage market competition are eroding the net interest margins of most UK lenders. These challenges will outweigh the sector’s strong capital and liquidity buffers and an expected decline in banks’ conduct costs,” Mayers added.

Moody’s expected the UK economy to grow by 1.2 per cent in 2019 and then at one per cent a year in 2020 and 2021.

The Financial Times, which reported the downgrade, said mortgage market competition “has driven some smaller banks to move towards riskier lending.”