Moody’s cuts UK’s credit outlook from ‘stable’ to ‘negative’

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Ratings agency Moody’s has cut the United Kingdom’s credit rating outlook from stable to negative after Thursday’s referendum, saying heightened uncertainty during negotiations with the EU will likely weigh on growth prospects.

“The UK’s decision to leave the European Union will lead to a prolonged period of uncertainty that will weigh on the country’s economic and financial performance,” Moody’s said in a statement, adding that its outlook on the UK’s sovereign and other rated entities had been cut to negative.

“The immediate financial market reaction has been pronounced, with sterling depreciating sharply and global equity markets falling,” the agency explained. “Heightened uncertainty during negotiations over new arrangements between the UK and the EU will likely dent investment inflows and consumer and business confidence in the UK, weighing on its growth prospects.”

The ratings agency does not expect a so-called Brexit to have major credit implications for most issuers that are based in the EU, but it cautioned that the referendum in the United Kingdom could increase the risk of political fragmentation within the EU if popular support for the bloc starts to fade.

“The lasting credit impact of the vote to leave will depend on the nature of the UK’s new ties with the EU. Moody’s central assumption is that the two sides will eventually come to an agreement that preserves most, but not all, of their current trading arrangements,” it said.

The ratings agency noted on Friday that the potential credit risks from a Brexit are likely to extend beyond the UK’s government bond, though Moody’s is maintaining the European Union’s stable outlook, at least for now.

Moody’s said British car-makers, manufacturers and food producers could be affected by higher trade barriers and reduced volumes once the exit is final and telecommunication companies, airlines and the pharmaceutical sector face regulatory risk.

Earlier on Friday, the S&P said the United Kingdom is likely to lose its AAA credit rating as a result of its decision to leave the European Union. “We think that a AAA-rating is untenable under the circumstances,” said Moritz Kraemer, chief ratings officer for S&P, according to FT.

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