Moody’s warns against the UK’s “credit negative” fiscal policies

The credit rating business has also revised its real GDP growth forecast to 3.3% from three percent in 2022, but has lowered its forecast for 2023 to 0.3% from 0.9%, and it does not expect growth to return to its potential level until 2026. 

It did describe the government’s energy price cap as something that would directly reduce inflationary pressures in the near term. However it expects real disposable incomes to decline this year because of inflation - which it forecasts will peak to close to 11% in the coming months, remaining above the Bank of England’s two percent until 2025. 

It comes off the back of a rare intervention from the International Monetary Fund (IMF), in which it called on the government to reverse its decision to abolish the top rate of income tax. The Washington-based United Nations agency said the mini-budget risked undermining the Bank of England’s efforts to tackle rampant inflation. 

It comes just days after chancellor Kwasi Kwarteng’s mini-budget, in which he announced the government would cut the basic rate of income tax by 1p from April 2023, cancelled the planned rise in corporation tax, and reversed the 1.25 percentage point rise in National Insurance contributions. 

Off the back of this, the UK economy has seen a sharp drop in the exchange rate of the pound against the US dollar - with sterling falling to its lowest value in 50 years.