It has accumulated debts of more than £6bn, making it one of the UK’s most indebted water companies.

Moody’s downgraded Southern Water to Ba1, below investment grade.

The decision underscores the company’s risk of technical default; This means it would violate credit rules if it loses another investment grade rating.

Southern Water said the decision “does not reflect” any change to its “strong financial position” and highlighted that its debt was within the guidelines of industry regulator Ofwat.

Southern Water CFO Stuart Ledger said: “Today’s action by Moody’s Ratings reflects the increasing challenges and uncertainty facing all companies operating in the UK water and wastewater sector.

“Ofwat’s Final Decision on 19 December will help alleviate much of the uncertainty in the sector and enable us to continue to improve our services to our customers with the support of our shareholders and lenders.”

The utility company, which provides water to 4.7 million people across the south and south-east of England, recently asked Ofwat to allow it to increase the average annual household water bill to £734 – higher than any other water company in England.