UK credit rating may be downgraded, warns Moody’s

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Moody’s has warned it may downgrade the UK’s credit rating if the country fails to retain access to the single market following Brexit negotiations.

The leading ratings agency has warned that abandoning the single market would have serious consequences upon public finances and the potential for growth of the British economy.

“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”, commented Kathrin Muehlbronner, a senior vice-president at the agency.

“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.”

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Muehlbronner continued: “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.”

In addition, Moody’s analysed the difficulties that may be encountered for the UK banking sector should passporting rights be revoked. Whilst the agency did consider the potential development to be “credit negative”, they did envisage that the change would be “manageable”. The potential loss of passporting is considered to be a big problem for many companies located in the UK, including major British banks, which would likely result in a period of reduced profitability for the economy.

Moody’s currently ranks the UK economy as Aa1, just below the top triple A rating. The UK’s rating was revised previously in light of continued stagnation of the economy in 2013, with Moody’s attributing this to various fiscal obstacles. Most recently, the June referendum vote provoked the UK positioning ranking from ‘stable’ to a ‘negative’ according to its analysis criteria.