The UK’s decision to leave the European Union will lead to a prolonged period of uncertainty that will weigh on the country’s economic and financial performance and will be credit negative for the UK sovereign and other rated entities, Moody’s Investors Service said in a report published today.
It said the immediate financial market reaction has been pronounced, with sterling depreciating sharply and global equity markets falling. Heightened uncertainty during negotiations over new arrangements between the UK and the EU will likely dent investment inflows and consumer and business confidence in the UK, weighing on its growth prospects.
While Moody’s does not expect Brexit to have major credit implications for most EU-based issuers, the outcome of the nationwide June 23 referendum could increase the risk of political fragmentation within the EU if popular support for the bloc fades among member states.
Moody’s said: “The lasting credit impact of the vote to leave will depend on the nature of the UK’s new ties with the EU. Moody’s central assumption is that the two sides will eventually come to an agreement that preserves most, but not all, of their current trading arrangements. However, the finer details in areas such as access to the single market, regulation and immigration will have a significant bearing on the new operating conditions for debt issuers.
“The potential credit risks stemming from ‘Brexit’ extend beyond the UK sovereign. In the non-financial corporate sector, car-makers, manufacturers and food producers could be affected by potentially higher trade barriers and reduced volumes. Telecommunication companies, airlines and the pharmaceutical sector are subject to regulatory risk.”