Earlier this week, Moody’s warned that the economic cost of exiting the EU would “outweigh the potential benefits”.
The investor’s service has also cautioned that leaving the EU may put at risk the UK’s Aa1 credit rating, potentially putting the UK’s rating on a “negative outlook”.
Implications of the UK’s credit rating being downgraded could force up the cost of borrowing and have ramifications on the cost of Britain servicing its debt. If the government has to spend more money to service its debt, this could result in deeper government cuts.
One of the reasons Brexit could put the UK’s rating on a “negative outlook” cited in Moody’s report is the “heightened uncertainty” it would bring, which would result in weaker economic growth.
This uncertainty, Moody’s purports, raises the possibility of reduced investment in UK companies until there is a clearer picture of what Britain outside of the EU looks like. A process which Moody’s suggest will take at least 2 years.
The prospect of such lengthy, and undoubtedly uncertain, negotiations is likely to deter foreign investment. This down turn in foreign investment along with other trade barriers, such as tariffs, regulatory changes, and curbs to migration, would hurt firms selling foods and non-financial services in the EU. Sectors such as manufacturing, would be hit much harder than the financial sectors such banking and insurance.
The report said “For non-financial corporate issuers in the UK, Brexit would be credit negative, reflecting the weakened macroeconomic outlook. While Moody’s believes the UK and the EU would preserve most of their existing trading relationships, any substantial new barriers to trade would pose a more significant threat to corporate creditworthiness. Infrastructure companies could face uncertainty around new regulatory regimes.”
Moody’s report follows a recent report by the CBI which said that Brexit overall cost to the economy by 2020 would be £100 billion, and nearly 1 million jobs.