The UK’s economic outlook has been downgraded from “stable” to “negative” by the ratings agency Moody’s due to political instability and high inflation.

Moody’s said the change in outlook was driven by “heightened unpredictability in policymaking amid weaker growth prospects and high inflation” and “risks to the UK’s debt affordability from likely higher borrowing and risk of a sustained weakening in policy credibility”.

Rating agencies rate a country on the strength of its economy and provide governments with a score based on the likelihood that they will be able to pay back debt.

The rating affects how much it costs governments to borrow money in the international financial markets.

According to the agency, an outlook period “typically lasts 12-18 months”.

But while the UK’s economic outlook has been graded as “negative”, Moody’s credit rating for the UK remains unchanged at Aa3.

The agency said this rating reflects the UK’s economic resilience “despite the weakening in fiscal policy predictability in recent years”.

It continued: “The country’s long-standing institutional framework remains strong and will continue to support the UK’s ability to respond to shocks, as seen during the pandemic. Furthermore, the structure of the UK government debt, with a very long average maturity of around 15 years, as well as a deep domestic investor base adds a degree of resilience to the credit profile in the face of shocks.

“The UK’s local and foreign currency country ceilings remain unchanged at Aaa. The three-notch gap between the local currency ceiling and the sovereign rating is driven by the government’s relatively small footprint in the economy, a fairly robust external payments position and a diversified economy.”