Article by ForexTime
Following the result of the referendum last Thursday in which the majority of Britons voted to leave the EU, Moody’s has downgraded Britain’s creditworthiness, questioning the country’s reputation of high-quality economic policy-making. The UK is expected to face an increase in uncertainty and a decrease in spending and investment as it negotiates its exit.
In line with warnings from Britain’s ministry of finance and central bank about the economic blow the country would face should Brexit prevail, the pound dropped to its lowest against the dollar last Friday, following the referendum results. The Prime Minister’s resignation, however, did not appear to add volatility to markets.
Expectations of downgrades to the UK’s credit outlook were similarly supported by Moody’s rival credit rating agency, Standard & Poor’s, in addition to Fitch Ratings.
Certain sectors are especially expected to suffer due to decreased spending, namely public services. Nevertheless, Moody’s claims that the negative economic growth foreseen for the near future will be outweighed by the savings from no longer being obliged to contribute to the EU budget.
There still remains uncertainty about what precisely the trade agreement between a newly-independent UK and the EU will entail. In the meantime, economic stagnation is not entirely unlikely despite Brexit supporters’ confidence of superior trade deals and immigration controls.
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