The UK’s credit rating could be downgraded again if the government fails to retain access to the single market as part of its Brexit negotiations, a leading ratings agency has warned.
Moody’s said a loss of access could lead to lower growth in Britain over the medium-term and damage the public finances. “We would downgrade the UK’s sovereign rating if the outcome of the negotiations with the EU was a loss of access to the single market as this would materially damage its medium-term growth prospects”, said Kathrin Muehlbronner, a senior vice-president at Moody’s.
“A second trigger for a downgrade would be if we were to conclude that the credibility of the UK’s fiscal policy had been tarnished as a result of Brexit or other reasons.”
Moody’s has given the UK an Aa1 rating, one notch below the top AAA rating. The ratings agency downgraded the outlook on the UK sovereign rating to negative from stable on 24 June, the day after the referendum. It stripped the country of its coveted triple A status in 2013, citing sluggish growth prospects and fiscal challenges.
In a report published on Wednesday, the agency said the UK’s medium-term outlook was weaker than it would have been if Britain had voted to remain part of the EU, but the scale of the impact would depend on the type of trade agreement it manages to strike in Europe.
Muehlbronner said: “The UK will have to handle multiple, complicated policy decisions in areas including global trade, immigration and regulation. Given the magnitude and complexity of these decisions, the risk is material that some might damage the UK’s economic or fiscal strength.”
Moody’s said its negative outlook for the UK banking system reflected “Brexit-induced uncertainties”, which had placed pressure on the revenues, asset quality and profitability of all UK banks. Loss of passporting rights for UK banks that operate across jurisdictions would be “credit negative but manageable”, it said.
This article was written by Angela Monaghan, for theguardian.com on Wednesday 2nd November 2016 12.11 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010