Moody's Says UK's Moves to Restore Budget Headroom Reflect Difficult Fiscal Outlook

Moody's on UK's Efforts to Restore Budget Headroom Amid Fiscal Challenges

(Reuters) - Ratings agency Moody's on Friday said the UK government's moves to restore budget headroom reflect a difficult fiscal outlook, although the timely reaction to a deterioration in public finances is positive.

British finance minister Rachel Reeves on Wednesday rebuilt the margin against which Britain's government will meet its fiscal rules, in part by cutting welfare payments.

"There is a significant risk that the chancellor will have to cut spending further or include new revenue-raising measures in the next budget in October," Moody's said in response to Reeves' Spring Statement.

Economists also say economic growth is likely to remain weak, raising the possibility that Reeves will be forced to raise taxes again in her annual budget towards the end of the year to stabilise the public finances — potentially conflicting with her Labour government's manifesto pledges.

According to Moody's, overall, the Spring Statement's measures do not change its view of the UK's credit quality and difficult fiscal consolidation prospects, and do not significantly change their expectations of high public debt.

(Reporting by Nishara K.P in Bengaluru; Additional reporting by Andy Bruce; Editing by Alan Barona)