Fitch and Moody's warn of Brexit vote risks

Britain voting to leave the European Union will weigh on confidence, delay investment decisions and possibly lead to a negative outlook for government debt, credit agencies Fitch and Moody's warned.

After David Cameron announced a 23 June date for the in-or-out referendum on the UK's membership of the European Union over the weekend, there was an immediate reaction in a falling pound on Monday.

Fitch said its base case was that the UK would stay in the EU but said a vote to leave was a "real possibility", while Moody's said the outcome of the referendum was "too close to call".

Moody's analysts added: “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 current Aa1 rating and "stable" outlook for government debt could, it said, change to a “negative" outlook, implying a greater chance of a downgrade in the future.

Fitch said that while it believes that in the event of an Out vote, the authorities on both sides would try to avoid disrupting the deep economic and financial integration between the UK and EU by establishing new relationships and trade agreements, there would certainly be some significant risks and a likelihood that the EU would impose some harsh measures on the UK to prevent other countries from trying to leave too.

"Some tightening of the freedom of EU citizens' to work in the UK would be likely. Avoiding large-scale, permanent disruption to trade relations, including services, could limit the long-term economic cost to the UK, with Brexit only moderately negative for the UK," Fitch said.

"But there would be significant risks, especially if the remaining EU members attempted to impose punitive conditions on the UK to deter other countries from leaving, or the UK sought very tough restrictions on EU citizens coming to work in the UK."