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Moody's slashes UK rating on Brexit fears

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Moody's slashes UK rating on Brexit fears

Moody's has slashed its UK rating on the back of Theresa May's much anticipated Brexit speech at the end of last week. 

The ratings agency, which removed the UK's prized AAA status in 2013, has taken the rating down another notch from Aa1 to Aa2. 

Moody's said concerns over the UK's public finances and effects of its exit from Europe were behind the move. 

In her third major speech on Brexit since last June's referendum, the prime minister told the audience in Florence the UK would be seeking a two-year transition period following its withdrawal from Europe. 

The pound fell by 0.5% against the dollar to $1.351 in the final few hours of trading on Friday following the speech, having threatened to sink below the $1.35 mark at one point. 

Moody's expects the UK's financial position to weaken as pressure mounts on the government following seven years of austerity.

'Since 2015, the government has been finding it increasingly difficult to implement the spending cuts that it has been targeting, in particular on welfare spending'. 

'While these additional expenditures will be funded out of current budgets, the pressure to continue to increase spending in the coming years is likely to remain high, in particular on health care and the public sector wage bill.'

Moody's expects Brexit to 'exacerbate' the situation as a result of the 'erosion of the UK's medium-term economic strength that is likely to result from the manner of its departure from the European Union.' 

The Treasury hit back at the report, describing it as 'outdated'. 

'The assessments made about Brexit in this report are outdated. The prime minister has just set out an ambitious vision for the UK’s future relationship with the EU, making clear that both sides will benefit from a new and unique partnership,' a spokesperson said. 

'We have made substantial progress in reducing the deficit while finding extra money for the NHS and social care at the same time. We are not complacent about the challenges ahead but we are optimistic about our bright future.' 

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