The UK's withdrawal from the European Union without an agreement to replace existing arrangements could lead to negative consequences for EU countries including Malta, Ireland, the Netherlands, and Cyprus, particularly in areas such as trade, Moody’s Investors Service said in a report today.
Moody’s warned that the risk of a no-deal Brexit had risen materially in recent months, and that if it came to pass, it would damage the UK economy, possibly leading the UK into a recession.
It would weigh on consumer spending and depress growth, and it would be credit negative for a range sectors and debt issuers in the UK and Europe.
"We still think the UK and the EU will eventually reach an agreement to preserve many - but not all - of their current trading arrangements, particularly around trade in goods," said Colin Ellis, Moody's Chief Credit Officer EMEA and co-author of the report. "However, we believe the prospect of the UK leaving the EU without any agreement has risen materially."
"The precise impact of a 'no deal' outcome is impossible to define because both the UK and the EU would likely take swift steps to limit short-term disruption. But it would clearly pose more significant credit challenges than a negotiated exit."
However, Moody’s pointed out that even if negotiations were to fail to come to fruition before March 2019, the European Council could, with the agreement of the UK, extend the two-year negotiation period before a no-deal Brexit actually occurred.
“Therefore, we would likely wait until it was very clear that a no-deal outcome would occur before considering the longer-term implications for the UK's credit profile.”