UK's credit outlook downgraded as Brexit vote wipes $2trn off world markets

Ratings agency Moody's forecasts weaker growth due to referendum result

brexit

TV screen shows global stocks plunging following the Brexit vote | Photo: PA Images

Ratings agency Moody's has changed the UK's sovereign rating from "stable" to "negative" due to the uncertainty unleashed by the result of the EU referendum.

It said that the unpredictability of UK decision-making factored into its move, as did the likelihood of lower economic growth.

"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.

Rival ratings agency Standard & Poor's said before Thursday's referendum that Britain stood to lose its AAA credit rating, and Fitch Ratings said on Friday that the vote would be "moderately negative".

But Moody's was the first to take concrete action after the vote, just as it was in 2013 when it was the first to strip Britain of its AAA rating due to slow growth and rising public indebtedness.

Leave supporters have largely dismissed warnings about the economic consequences as scaremongering, and are confident Britain will negotiate trade deals and immigration controls superior to those it already has.

Turbulent trading

But Moody's said leaving the EU was likely to leave Britain, the world's fifth-largest economy, with less money to spend on public services.

"The negative effect from lower economic growth will outweigh the fiscal savings from the UK no longer having to contribute to the EU budget," it said.

"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 multiyear fiscal consolidation plan," it added.

The Brexit vote wiped more than $2trn from global equity markets and European stocks ended down 7% - the biggest one day fall since 2008.

After a day of turbulent trading, the markets rallied slightly with the FTSE closing down 3.2%.

The pound crashed 10% against the US dollar to a 31-year low at one point, before rebounding slightly.

The price of gold - a traditional safe haven during volatility - had its best day since 2009 rising 5%.