21st Mar 2023

Brexit threatens credit rating, Moody's says

  • PM Cameron - an EU membership referendum is due to be held before the end of 2017 (Photo: University Hospitals Birmingham)

The prospect of the UK leaving the EU threatens the country’s credit rating, a leading agency warned Monday (8 June).

Ratings agency Moody’s said the possibility of losing access to the EU’s single market is a threat to the UK’s economic prospects.

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“While the outcome of the referendum remains uncertain, Moody’s believes that a withdrawal from the EU would have negative implications for the UK’s growth prospects and – in the absence of an alternative trade arrangement with the EU that at least partly replicates the current access to the EU’s single market – would likely put pressure on the UK’s sovereign rating,” the agency said in a report on the UK economy.

It also commented that a shorter negotiation period on reforms to the UK’s relationship with the bloc could increase the risk.

“A shorter time frame increases the risk that the UK government will not manage to secure the changes that it is seeking, which in turn may negatively influence the government’s willingness to support remaining in the EU,” the agency added.

Cameron has promised to hold a public vote by the end of 2017 but his officials are keen to hold it sooner to cash in on his strong public popularity following last month’s election victory, and to avoid a clash with the French and German elections.

For its part, the Confederation of British Industry cut its growth forecasts for the UK economy to 2.4 percent and 2.5 percent for this year and next, as a result of a possible Greek exit from the eurozone and delayed investment because of uncertainty about the EU referendum.

“‘Businesses now have certainty that the referendum is happening, but not the outcome,” it said.

Cameron's U-turn

The two reports made for a difficult day for UK prime minister David Cameron, who was forced to climb down from remarks made on Sunday suggesting that eurosceptic ministers wanting to campaign for a ‘No’ vote would have to resign from the government.

“If you want to be part of the government, you have to take the view that we are engaged in an exercise of renegotiation, to have a referendum and that will lead to a successful outcome,” Cameron said.

But he clarified on Monday that he "rules nothing out" if his attempts to renegotiate the UK’s membership terms are unsuccessful.

"It's clear to me what I said yesterday was misinterpreted," he added.

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