The report, titled “UK Vote for EU Exit Signals a Prolonged Period of Uncertainty”, said the immediate financial market reaction has been pronounced, with sterling depreciating sharply and global equity markets falling.
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Those who support Britain’s exit from the European Union 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.
“Any negative sovereign rating action would affect the relatively small number of sovereign-linked or capped ratings in infrastructure, public finance and structured finance and government-guaranteed bank debt”. The UK government has one of the largest budget deficits among advanced economies, and lower GDP growth will further complicate the implementation of the government’s multi-year fiscal consolidation plan.
The agency also affirmed Britain would remain on the AA+ rating, three years after it cut Britain’s AAA rating.
The move follows the count in Britain’s European Union referendum, which saw voters choose to quit the bloc by 52 percent to 48 percent as the government’s pro-EU campaign was defeated by more than 1 million ballots. Fitch Ratings and Moody’s Investors Service reduced the U.K.to their second-highest levels in 2013.
Moody s also said that the change in government that will come with the resignation of Prime Minister David Cameron will create uncertainty over the country s financial discipline.
Much depends on the future trade relationship between Britain and the EU.
The decision of the United Kingdom 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.
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As a outcome of the weaker GDP growth outlook and institutional strength, the UK’s public finances will also likely be weaker than Moody’s has assumed so far.
