Scope has completed a monitoring review of the United Kingdom
Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns, and supranational organisations.
Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial-market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.
Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.
Scope has completed a monitoring review for the United Kingdom (long-term local- and foreign-currency issuer and senior unsecured debt ratings: AA/Stable; short-term local- and foreign-currency issuer ratings: S-1+/Stable) on 15 May 2023.
This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.
For the updated rating report accompanying this review, click here.
Key rating factors
The United Kingdom’s long-term AA/Stable ratings are underpinned by the following credit strengths: i) the country’s strong institutions including robust financial supervisory, economic and monetary governance frameworks; ii) its large, wealthy and diversified economy, which has proved resilient during the Covid-19 pandemic; and iii) a robust debt profile with long average maturities and strong market access.
Challenges relate to: i) the country’s weakening fiscal and economic outlooks; ii) a weak external position with persistent current account deficits; and iii) the prolonged uncertainties surrounding the post-Brexit UK-EU trade relationship.
The UK economy displayed comparatively robust real GDP growth of 4.1% in 2022, primarily reflecting a continued post-pandemic recovery in the first half of the year. Nevertheless, the economic momentum slowed markedly in H2 2022, as high inflation and rising interest rates reduced private demand. These headwinds will continue to weigh on output growth over the medium term, with price pressures set to moderate only gradually over the course of 2023. Scope expects growth to slow to 0.2% in 2023, before converging to its long-term potential in subsequent years, which Scope estimates at around 1.5%.
The Stable Outlook reflects Scope’s view that the risks the UK faces over the next 12 to 18 months are well balanced.
The ratings/Outlooks could be downgraded if, individually or collectively: i) a protracted fiscal deterioration resulted in a significantly weaker fiscal outlook and a steepening of the debt trajectory; ii) the medium term growth outlook weakened significantly, for example caused by a financial or economic shock; and/or iii) external vulnerabilities increased or the sterling’s status as a reserve currency were challenged.
Conversely, the ratings/Outlooks could be upgraded if, individually or collectively, the UK’s: i) public finances improved, resulting in a material improvement in the fiscal outlook including a stable downward trajectory of public debt in the medium term; and/or ii) external vulnerabilities were reduced.
The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 27 September 2022) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Eiko Sievert, Director.
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