Moody’s, one of the big three credit ratings agencies, has cut its outlook for the UK economy from “stable” to “negative”.
Credit rating agencies, in essence, rate a country on the strength of its economy.
More specifically, they score governments (or large companies) on how likely they are to pay back their debt.
A rating affects how much it costs governments to borrow money in the international financial markets. In theory, a high credit rating means a lower interest rate (and vice versa).
This is because of concerns at the impact that leaving the European Union may have on the UK economy. Moody’s warned that the referendum result may have “negative implications for the country’s medium-term growth outlook”.
Who are the credit rating agencies?
In addition to Moody’s, the other two main credit rating agencies are Standard & Poor’s and Fitch Ratings.
All three are private companies, not government agencies. Moody’s and Standard & Poor’s both have their headquarters in New York, while Fitch has two official HQs, one in New York and the other in London.
What are their scoring systems?
Each agency gives countries around the world a specific credit rating score. These range from a top mark of “AAA”, which stands for “prime”, down to the lowest reading of “D”, which stands for “in default”.