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Moody’s warns of further UK downgrade

Brexit moneyRatings agency Moody’s has again warned it will downgrade the UK’s credit rating further if it fails to preserve its access to the “core element” of the European single market once it leaves the union.

The firm said in a statement its current Aa1 sovereign rating would be downgraded “if the UK’s loss of access to the European single market following Brexit were to materially weaken medium-term growth” as well as “if the credibility of UK fiscal policy were to be undermined”.

Moody’s downgraded the UK’s credit rating the day the outcome of the Brexit vote was delivered to Aa1 negative from stable, but says the nature of the UK’s relationship with the EU will impact its creditworthiness in the medium term.

Five days after the EU referendum Moody’s also alerted on its downgrade of UK banks  following rival firms S&P which removed the UK’s AAA credit rating and Fitch which downgraded the rating from AA+ to AA, saying there will be an “abrupt slowdown” in growth over the short term.

Again in July, Moody’s said the country could face a further post-Brexit credit-rating downgrade.

At that time, the ratings agency had revised its forecast for the UK’s GDP growth in the short term from 1.8 per cent in 2016 and 2.1 per cent in 2017 to 1.5 per cent and 1 per cent respectively.

Meanwhile, Kathrin Muehlbronner, senior vice president at Moody’s, says a failure to retain access to the EU’s market would “materially damage [the economy’s] medium-term growth prospects.

Moody’s said the scale of the impact of Brexit on its growth prospects will mostly depend on the UK’s new trading relationship with the EU.

It says: “One scenario that Moody’s considers to be realistic is a series of accords offering access to the EU market for goods and more constrained access for services, in particular financial services. However, such an outcome is far from certain.”

The UK would lose its access to 50 existing free trade agreements it enjoys as a member of the EU in every scenario.

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Comments

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  1. Nowithstanding the premature euphoria of the Brexit brigade, it does look like we are staring into the abyss – as many of us feared.

    I just hope that our government doesn’t choose to jump into it.

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