(Bloomberg) -- Moody’s Investors Service warned the UK government that its new mini-budget, which included sweeping tax cuts that sent the pound to a record low, risks doing lasting damage to the nation’s debt affordability.

“Large unfunded tax cuts are credit negative,” it said in a statement. Such a move will “lead to structurally higher deficits amid rising borrowing costs, a weaker growth outlook and acute public spending pressure stemming from the pandemic and a decade of austerity.”

Investors took fright after Chancellor Kwasi Kwarteng on Friday unveiled the country’s biggest fiscal giveaway in half a century. The ratings agency slashed its GDP growth forecast for 2023 to 0.3% from 0.9%.

It added that a “sustained confidence shock arising from market concerns around the credibility of the government’s fiscal strategy” could also “permanently weaken the UK’s debt affordability.” The assessment from Moody’s came shortly after the IMF delivered a stinging rebuke of the tax cuts by calling them excessive and in need of revision.

Read more: IMF Tells UK to ‘Re-Evaluate’ Tax Cut as Global Criticism Mounts

On Tuesday, the UK government’s long-term borrowing costs soared above 5% for the first time in two decades as investors braced for a flood of bond supply and aggressive rate hikes. Moody’s sees government debt reaching 104% of GDP in 2026, from 100% in 2022. 

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