Moody’s: Britain Now at Risk of Downgrade in Credit Rating

Moody’s, the ratings agency said that the creditworthiness of Britain was now a greater risk after its voters decided to exit the European Union, due to the country facing many more challenges to negotiate successfully its exit from the European bloc.

Moody’s gave the British government debt a negative outlook to the Aa1 rating after the referendum voted on Thursday showed by a clear majority that Britons wanted to exit the EU and prompting brought about the announcement of David Cameron’s resignation as Prime Minister.

The agency added that during the many years that the UK will need to renegotiate all trade relations with the EU, Moody’s believes there will be more uncertainty, less confidence and not as much investment and spending to result in less growth.

Britain’s central bank and finance ministry warned its voters that the country would have to face a major hit economically if it decided to leave the EU following over 40 years of being a member, and sterling Friday dropped to its lowest point versus the dollar in 31 years.

Other credit ratings companies such as Standard & Poor’s said prior to the referendum vote on Thursday that Britain would likely face a downgrade if voters opted to leave the EU. Fitch Ratings on Friday said that the vote was moderately negative.

However, Moody’s was the first agency to take action following the Thursday vote just as it did in 2013 when it stripped Britain of its credit rating of AAA first due to rising public debt and slow growth.

The decision of the UK to leave the European bloc raised a number of questions over the economic policymaking in Britain, saying that the predictability of policy and the effectiveness of economic policymaking could become diminished. The challenges for officials and policymakers will become substantial.

Moody’s added that protracted talks on trade, slow growth as well as heighted pressure on currency could all cause a downgrade.

Those who support Britain’s exit from the EU have dismissed the warnings for the most part related to economic consequences and are confident that Britain can negotiate new trade deals and controls on immigration that are superior to those in place already.

However, Moody’s said that leaving the bloc would likely leave Britain will not as much money to spend on its public services.

A negative effect created by lower growth economically will outweigh fiscal savings from the UK not having to contribute any longer to the budget of the EU.