The probability of reaching a no deal on Brexit is "substantial" and could cause "significant" economic disruption for the UK, Moody's has warned.
The credit rating agency, which last week revealed the UK's credit rating was under pressure amid uncertainty surrounding the negotiations, has today said any failure to agree terms for the UK's withdrawal from the EU would be "significantly credit negative for some UK-based issuers".
It warns that a no deal - which an increasing number of commentators have said is a possibility - could lead to recession, higher unemployment and a leap in inflation, while immigration restrictions could "exacerbate skills shortages in certain sectors".
Just-in-time supply chains could be "severely affected" by increased border inspections, Moody's said. The impact of 'no deal' on the airports, aviation and ports sectors could be "dramatic".
"We still think that the EU and the UK will eventually come to an agreement that captures many—but not all—of their current trade arrangements," said Colin Ellis, Moody's managing director of credit strategy, and the report's co-author. "But the probability that negotiations will fail and no agreement will be reached is substantial."
The warning comes as negotiations continue in Brussels this week. Although Brexit secretary David Davis left after just a couple of hours at the table he said the current set of talks would get to the substance of the matter. An update is expected on Thursday.