Moody’s warns UK budget will add 'additional challenge' to public finances

LONDON

Rating agency Moody’s on Friday raised concerns over the UK’s fiscal health following the release of the Labour government’s new budget, cautioning that increased borrowing will pose "an additional challenge" to public finances.

The warning comes as UK gilt yields – the effective cost at which the government borrows – surged to their highest point this year on Thursday.

Market reactions reflect growing investor apprehension, driven by the expected £28 billion ($36.18 billion) in additional borrowing announced in Treasury chief Rachel Reeves’s budget, announced on Wednesday.

Moody’s assessment highlights concerns that the budget offers limited prospects for boosting economic growth, with little buffer for handling future financial shocks.

The agency’s note, as reported by the Financial Times, underscores that the increase in borrowing, facilitated by new debt measures under the fiscal framework, will intensify already challenging fiscal consolidation efforts.

"In our view, the increase in borrowing, which is in part supported by a new measure of debt under the fiscal framework, will pose an additional challenge for what are already difficult fiscal consolidation prospects," the agency said in its note to investors.

Moody’s voiced skepticism over whether the budget’s new investment spending could significantly lift growth potential, pointing to structural issues within the UK economy that may limit such outcomes.

While the budget includes several long-term investment initiatives, Moody’s cautioned that unless these structural issues are "durably addressed," tangible economic gains would likely remain constrained.

This position reflects broader concerns among bond investors and underscores the importance of UK fiscal policy within the international market.