No-deal Brexit risks UK recession and credit rating cuts says Moody’s
A no-deal Brexit would risk a recession in the British economy and endanger the credit ratings of a host of companies, an influential rating agency said today.
Moody's Investor Service said the risk of negotiations between the UK and the EU breaking down had “risen materially” in recent months, in an update to the market.
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While the agency said the precise outcome would be difficult to predict, it said no deal would be "credit negative" for issuers across the economy.
The government is aiming for a negotiated exit, but ministers have repeatedly warned that leaving without a deal is possible. They have released papers covering multiple sectors outlining the consequences of no deal.
Meanwhile, a significant number of Conservative party MPs have indicated that they will vote against the government's current plan, outlined in a white paper agreed by the Cabinet at Chequers, the Prime Minister's rural residence.
A no-deal Brexit “would clearly pose more significant credit challenges than a negotiated exit”, Moody's said.
The opinion of the ratings agency is important because some investors are only allowed to hold debt which is rated above a certain level. Any fall in a rating – for a country or an individual company – can make borrowing more expensive.
"We still think the UK and the EU will eventually reach an agreement to preserve many – but not all – of their current trading arrangements, particularly around trade in goods," said Colin Ellis, Moody's chief credit officer EMEA and co-author of the report.
"However, we believe the prospect of the UK leaving the EU without any agreement has risen materially.”
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The agency warned of short-term consequences including a sharp fall in the value of the British pound, higher inflation and a “squeeze on real wages over the two or three years”.
The subsequent consumer spending squeeze would risk tipping the UK into recession, Moody's said.
Meanwhile, Ireland, the Netherlands, Cyprus and Malta could also see their economies damaged.