Brexit is credit negative for the UK and may affect most sectors due to weaker medium-term growth and investment prospects, rating agencies Moody's and Fitch said today.
The UK's decision to leave the European Union will lead to a prolonged period of uncertainty that will weigh on the country's economic and financial performance, Moody's said in a report.
"Heightened uncertainty during negotiation period over new arrangements between the UK and the EU will likely dent investment inflows and confidence, weighing on the UK's growth prospects and consumer and business confidence - a credit negative for the sovereign and other UK debt issuers," it said in the report.
The report says this will translate into weaker economic growth in the UK and prolonged asset price volatility.
"Financial conditions could also tighten if investors demand a higher risk premium for holding UK assets," it added.
A drying up of foreign direct investment flows into the UK, close to half of which originates from other EU countries, would also increase the UK's external vulnerabilities.
In addition, any change in leadership of the government, or political pressures stemming from weaker growth, would create additional uncertainty, the report said.
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.
Meanwhile, Fitch Ratings said the 'Leave' result in the UK referendum on EU membership is credit negative for most sectors in the UK due to weaker medium-term growth and investment prospects and uncertainty about future trade arrangements.
Brexit will be moderately credit negative for the UK sovereign, it said.
Fitch Ratings said the company will review the sovereign rating shortly.
"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.
"But overall we expect near-term rating actions for other sectors to be limited," it said in its report 'Brexit to Drive Widespread Credit Pressure: Ratings Impact Depends on Macro Factors, Markets and Exit Terms'.
Fitch said the failure to agree on favourable trade arrangements would also be a significant negative for some sectors.
"The UK's status as a major international banking hub could be damaged as some business lines shift to the EU," it said.
Higher import costs and pressure on exports due to the potential imposition of tariffs would be broadly negative for corporates.
The extent to which the UK would be able to limit net inward migration could be significant for some asset classes, Fitch Ratings said.
