It means Moody’s thinks there is a 30% chance of a UK downgrade within 18 months.
Moody’s said it was primarily concerned with the “weaker macroeconomic environment, which will challenge the government’s efforts to place its debt burden on a downward trajectory over the coming years”.
It highlighted the eurozone as a marked threat to the UK.
“Although the UK is outside the euro area, the high risk of further shocks (economic, financial or political) within the currency union are exerting negative pressure on the UK’s AAA rating given the country’s trade and financial links with the euro area.
“Overall, Moody’s believes that the considerable uncertainty over the prospects for institutional reform in the euro area and the region’s weak macroeconomic outlook will continue to weigh on already fragile market confidence across Europe.”
Moody’s also threatened the AAA ratings of France and Austria, and downgraded six European nations, including Italy, Spain and Portugal.
Moody’s decision is a blow to Chancellor George Osborne, who has maintained it was the coalition’s efforts to tackle its debt which has kept the UK’s financial reputation intact.
However, the Treasury picked up on a key point made by Moody’s, which is that there would almost certainly be a full downgrade should there be any “reduced political commitment to fiscal consolidation, including discretionary loosening”.
The UK economy has been at a virtual standstill for more than a year. The Bank of England and the independent Office for Budget Responsibility have both downgraded their forecasts for this year.
