Moody’s issues fresh UK downgrade warning over Brexit

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Ratings agency Moody’s has issued a fresh warning that a Brexit could mean it downgrades the UK’s credit rating.

The agency argues the economic costs of the UK leaving the EU would outweigh the benefits, saying it 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”.

Moody’s says despite the agreement reached by Prime Minister David Cameron at the weekend alleviating “some uncertainties”, large questions remain about the implications of the UK leaving the EU.

At the weekend, Cameron revealed the in-out referendum for the UK in the EU will be held on 23 June.

Kathrin Muehlbronner, a senior vice president at Moody’s, says: “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.”

Moody’s adds: “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.”

Last year Moody’s warned a Brexit was a bigger risk to the UK’s credit rating than the general election.

Other ratings agencies have added their voice to concerns about Brexit.

In December, Standard & Poor’s said it was keeping its outlook for Britain’s rating at negative, while Fitch said a UK vote to leave the EU would be “moderately negative” and could also trigger a move by Scotland to leave the UK.

S&P said:”In a worst-case scenario, a Brexit could also harm the sterling’s role as a global reserve currency, removing what has been a significant support for our AAA rating on the UK since the start of the global financial crisis.”