Despite its significant structural strengths, the United Kingdom now has a reduced ability to absorb further macroeconomic or fiscal shocks without rating implications, Moody's said on Tuesday.

In its annual credit report on the UK, Moody's said the significant increase in the UK government's deficit and debt metrics since 2008, the weaker macroeconomic prospects and the risks emanating from the euro area crisis mean the country faces formidable and rising challenges.