Brexit: Result will be 'credit negative' for UK - Moody's, Fitch
The UK’s decision to leave the European Union would be "credit negative” for sovereign and other related entities and most sectors in the country, two ratings agencies said on Friday.
In a statement, Moody’s said the decision would lead to a long period of uncertainty that will weigh on the UK’s economic and financial performance.
This was echoed by Fitch, which said Brexit is “credit negative for most sectors” due to weaker medium term growth, investment prospects and uncertainty about trade agreements.
Moody’s said it does not expect Brexit to have major credit implications for most EU-based issuers, but it could act as a catalyst for further political fragmentation in the 28 member bloc if support for the EU fades.
International shares and the pound plummeted after the UK voted to leave the EU on Friday.
Moody’s said negotiations over new arrangements between the UK and EU will likely dent investment inflows, consumer and business confidence in the country and development prospects.
It added that it expects the UK and EU to come to an agreement that conserves most, but not all, of the current trading arrangements.
Moody’s, one of the big three credit rating agencies, said particular details related to access to the single market, regulation and immigration will also affect the operating conditions for debt issuers.
Beyond potential credit risks the non-financial corporate sector, the motor industry, manufacturers and food producers could be affected by higher trade barriers and reduced volumes.
Telecommunication companies, airlines and the pharmaceutical sector would also be subject to regulatory risk, Moody's said.
Fitch said any negative sovereign rating would affect a small number of sovereign-linked or capped ratings in infrastructure, public finance, structured finance and government bank debt.
The medium to long term prospects of any rating actions will depend on the impact on GDP, the size of sterling devaluation, effect on inflation, asset prices, unemployment and interest rates, as Fitch expects near term rating action for other sectors to be limited.
The status of the UK as a major international banking hub is a concern to Fitch as it could be damaged as some businesses move to the EU. Higher tariffs on imports and exports could put big business off the UK.
The agency also said “the extent to which the UK would be able to limit net inward migration could be significant for some asset classes”.