Moody's Investors Servicehas changed the outlook on the UK's credit rating to negative from stable following the EU referendum result.
The agency said the result will herald “a prolonged period of uncertainty with negative implications for the country’s medium-term growth outlook”.
“During the several years in which the UK will have to renegotiate its trade relations with the EU, Moody’s expects heightened uncertainty, diminished confidence and lower spending and investment to result in weaker growth,” the agency said.
“Over the longer term, should the UK not be able to secure a favourable alternative trade arrangement with the EU and other countries, the UK’s growth prospects would be materially weaker than currently expected.”
Sterling plunged to a three-decade low yesterday, British and global stocks tumbled and European bond spreads widened as the Brexit result sank in.
The decision to leave the EU raised questions over Britain’s hitherto high-quality economic policymaking, Moody’s said.
Britain’s vote on Friday to leave the EU sparked widespread turmoil and uncertainty, forcing British prime minister David Cameron to resign and wiping more than $2 trillion of value from markets around the world.
“Policy predictability and effectiveness of economic policymaking ... might be somewhat diminished,” the agency said. “The challenges for policymakers and officials will be substantial.”
Pointing out that the UK has one of the largest budget deficits among advanced economies, Moody’s warned the result was likely to leave Britain with less money to spend on public services.
“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.
“Consequently, the public debt ratio will likely remain higher than the rating agency previously expected,” it added.