EU referendum: Moody's says Brexit costs outweigh the benefits and warns of negative effect on UK Plc credit ratings

Lauren Fedor
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A British exit from the European union would result in prolonged uncertainty and put downward pressure on British companies’ credit ratings, Moody’s Investors Service has warned.

In two new reports out today, the credit rating giant said that the economic costs of a so-called Brexit would outweigh the potential benefits, with the UK leaving the EU leading to heightened uncertainty, weaker medium-term growth and a downturn in investment.

Moody’s said there would be “limited credit implications” for UK-based banks or banks with “sizable” British businesses, but warned that rating changes “could be more pronounced” in other sectors if a British exit dealt a blow to trade and investment or increased labour costs.

“The biggest near-term credit risk from a Brexit for companies is the uncertainty that would follow with regards to trading relations, industry regulations and labour mobility,” said Moody’s group credit officer for corporate finance Richard Morawetz. “We expect that some companies would curb investments until there is greater clarity in these areas.

“However, given the potential two year timeline for a Brexit to take effect, there is likely to only be a few, if any, near-term rating changes,” Morawetz added.

“In the longer-term, rating changes could be more pronounced if a Brexit became clearly detrimental to trade, investment or labour costs, and ultimately to companies’ profitability.”

Meanwhile, a new report out today from American Express found that finance directors at British companies are optimistic about the future, despite lingering uncertainty over Britain’s relationship with the European Union.

In a survey of 100 chief financial officers at UK companies, American Express found that three in four expect to see economic growth this year – making British finance directors more optimistic in their outlook than their European or global counterparts.

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