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Moody's Investors Service on Friday changed the outlook on the UK government's ratings to negative.
Despite the lowered outlook, the credit ratings agency affirmed the domestic and foreign-currency long-term issuer and domestic-currency senior unsecured ratings at Aa3.
Moody's pinned the negative outlook on "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."
On Thursday, Liz Truss stepped down as Conservative leader, sparking another contest to run the country.
Tories have begun to declare their allegiances in the party's second leadership contest of the year as speculation mounts over who will seek to replace Truss at the helm of the party.
Supporters of Boris Johnson are backing the former prime minister to make an extraordinary political comeback, while ex-chancellor Rishi Sunak and Commons Leader Penny Mordaunt also have the public support of several MPs, should they choose to run.
"The evolution of policymaking, and the UK government's ability to engender confidence in its commitment to fiscal prudence, will be a material consideration for Moody's in resolving the negative outlook," Moody's added.
It noted an outlook period typically lasts 12 to 18 months.
New data showed consumer inflation in the UK was shoved back into double digits in September, which turns the spotlight firmly onto the Bank of England.
The consumer price index rose by 10.1% in September from a year before, according to the Office for National Statistics. The inflation rate picked up from 9.9% in August and returned to the same rate as recorded in July.
In its affirmation of the UK's Aa3 rating, Moody's noted the country's "economic resilience supported by its wealthy, competitive and diversified economy."
"Despite the weakening in fiscal policy predictability in recent years, 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," it continued.
"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."
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