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Moody's: Brexit qualms to hit UK business investment

By Staff Reporter

Published 18/08/2016

Brian Murphy of BDO
Brian Murphy of BDO

Uncertainty surrounding the future of the UK economy outside the European Union will trigger a slowdown in business investment and consumer spending, according to credit ratings agency Moody's.

The group's quarterly report on the outlook for the global economy said the fallout from the Brexit vote will cause UK investment spending to "weaken considerably" during the second half of this year through to 2017.

But it said the plunge in the value of the pound since the EU referendum result will help soften the blow by boosting exports in the short-term.

The credit ratings agency stood by its previous predictions for UK gross domestic product (GDP) to grow by 1.5% this year, and 1.2% in 2017.

It said "Brexit-related spillovers" to the eurozone would be limited, but expected some impact to economic growth, pencilling in GDP of 1.5% in 2016 and the 1.3% the year after.

It said the outcome of the US Presidential election in November could hit global confidence and growth if it leads to a policy shift that weakens global trade and security.

Meanwhile, global bank HSBC has predicted that the euro will reach parity with sterling within 18 months.

Swiss giant UBS and Spanish lender Santander have similar views, with the weakening in the pound set to remain for now as one of the biggest post-Brexit vote issues facing business in the Republic.

But it's also benefiting Northern Ireland exporters. Brian Murphy, a partner at business advisers BDO in Belfast, has said the weakening pound is "like Christmas" for Northern Ireland manufacturers with large export bases.

But specialist bank Investec isn't convinced parity will be reached, stating that while the pound may flirt with the €0.90 range, it will ultimately settle around mid-€0.80.

Currency volatility has been one of the chief headaches for business in the wake of the June 23 vote in the UK to pull out of the European Union.

The pound weakened to a three-year low this week as it tipped above 87p to the euro. By mid-afternoon yesterday it was at 0.865.

A weaker pound poses cost and competitiveness issues for firms selling into the UK market, as it becomes more expensive for British consumers to buy their products, while firms in border areas could lose shoppers to Northern Ireland.

HSBC said sterling needs to weaken further to make UK assets attractive enough to foreign investors, given the current uncertainty. By the end of this year, the bank said it will move above the 90p mark, and weaken further over the course of next year.

Belfast Telegraph

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