Moody’s warns of prolonged uncertainty for UK after Brexit vote

RATING agency Moody’s Investors Service says the UK’s decision to leave the European Union (EU) will bring uncertainty and is negative for the country’s credit rating. Britons voted in a referendum to leave the EU.

"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, and will be credit negative for the UK sovereign and other rated entities," Moody’s Investors Service said on Friday.

The pound, global stock markets and currencies tumbled following the news, while gold and the dollar, considered a safe haven in times of economic uncertainty, rose. The rand was among emerging market currencies that fell almost 7% after the decision.

Momentum’s head of macro research, Herman van Papendorp, and economist Sanisha Packirisamy forecast further improvement in safe havens like gold and the dollar, and further pressure on currencies such as the rand.

"A rising risk-off tendency puts all perceived risky assets under pressure — including equities, the euro, pound, commodity prices, as well as emerging market currencies and assets," they said.

 

A prolonged avoidance of emerging-market assets by investors would hit countries with large current account deficits, which depend on global capital inflows to fund such shortfalls particularly hard, Capital Economics chief emerging markets economist Neil Shearing said.

Heightened uncertainty during negotiations over new arrangements between the UK and the EU would probably dent investment inflows and consumer and business confidence in the UK, weighing on its growth prospects, Moody’s said.

The rating agency did not expect the UK’s decision to leave the EU to have major credit implications for most EU-based issuers, but noted that the outcome of the referendum could increase the risk of political fragmentation within the EU if popular support for the bloc faded among member states.

Moody’s assumed that the UK and EU would eventually come to an agreement that preserved most, but not all, of their current trading arrangements.