22 February 2016

Moody's warns Brexit would risk UK's credit rating

In Moody's view the economic costs of a decision to leave the EU would outweigh the economic benefits. The credit rating agency would "consider assigning a negative outlook" to Uk's sovereign's rating following a vote to exit.

The final agreement reached on 19 February by the EU's 28 heads of state on the UK's continued EU membership will help to alleviate some uncertainty around Brexit, although the precise terms of the agreement are of little direct relevance to the UK's credit standing, says Moody's Investors Service.

"We consider it positive that the referendum will take place as soon as June, as a lengthy period of uncertainty on the part of firms and investors would damage the UK's economic growth prospects. That said, the outcome of the referendum remains wide open. In our view, a decision to leave the EU would be credit negative for the UK economy," says Kathrin Muehlbronner, a senior vice president at Moody's. [...]

However, the outcome of the referendum remains too close to call. In Moody's view the economic costs of a decision to leave the EU would outweigh the economic benefits. Unless the UK managed to negotiate a new trade arrangement with the EU that preserves at least some of the trade benefits of EU membership, the UK's exports would suffer. It would likely lead to a prolonged period of uncertainty, which would negatively affect investment, in Moody's view. It would also place a significant burden on policy-makers who would have to renegotiate the UK's trade relations with the EU and other countries and regions, as well as reconsider other areas such as regulatory and immigration policies.

Moody's would consider reflecting those threats to the UK's credit standing by assigning a negative outlook to the sovereign's Aa1 rating following a vote to exit, pending greater clarity on the longer-term impact on the UK's economic and financial strength.

Full press release

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