UK 'risks losing top credit rating if it fails to secure favourable Brexit'
The UK's Aa1 sovereign rating will be hit if the country cannot agree a favourable exit from the European Union, including retaining access to the single market, Moodys said yesterday.
The rating agency thinks the UK's medium-term economic outlook will be weaker as a result of the Brexit vote, but that the scale of the effect will depend on the format of the UK's new trading relationship with the EU.
"We would downgrade the UK's sovereign rating if the outcome of the negotiations with the EU was a loss of access to the single market as this would materially damage its medium-term growth prospects," said Kathrin Muehlbronner, a Moody's senior vice president.
"A second trigger for a downgrade would be if we were to conclude that the credibility of the UK's fiscal policy had been tarnished as a result of Brexit."
The rating agency expects that the UK government's Autumn Statement, due on November 23, will bring more clarity to the area.
In Berlin yesterday, the German government's council of economic advisers called for "constructive negotiations" to keep Britain in the EU, despite the Brexit referendum vote.
The short-term economic effects on the UK are likely to remain moderate and will affect the UK more than its partners, though "a sharp collapse" is not very likely, the council said in its annual report to German Chancellor Angela Merkel.
If Brexit cannot be stopped, negotiations must strike a balance between preserving close economic links and avoiding the risk of setting a precedent for other countries, it added.
But the influential group also pushed for talks to minimise the effects of the vote.
"There is still a chance to prevent an exit through constructive negotiations or at least to negotiate a succession agreement which minimises the damage for both sides," the council said.
While "concessions to the UK in detail mustn't be a taboo," the "four basic freedoms are, however, indispensable," the council said, referring to EU rights and obligations that include free movement of labour.
The Government is committed to following through on the popular vote in June in favour of leaving the EU. The 27 other EU governments, including Germany, say the UK cannot expect full access to the bloc's common market without accepting free movement of people, capital, goods and services.
Meanwhile, in London the High Court will today decide whether lawmakers, rather than the Government, must trigger the process of leaving the EU, a decision that could affect the circumstances of the exit.