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Moody's says June EU vote would ease uncertainty for UK economy
February 4, 2016 / 7:22 AM / 2 years ago

Moody's says June EU vote would ease uncertainty for UK economy

LONDON (Reuters) - A June referendum in Britain on whether to remain part of the European Union would reduce political and economic uncertainty caused by the vote, Moody’s said on Wednesday, warning again that a “Brexit” would be negative for the UK’s credit rating.

Kathrin Muehlbronner, Moody’s lead sovereign analyst for the UK, also told Reuters that proposals laid out by Brussels for a new deal with Britain should help Prime Minister David Cameron convince the UK public to vote to stay in the 28-nation bloc.

Cameron has promised to hold a vote before the end of 2017 but a date this summer is increasingly expected.

“We’re looking closely at the referendum and it’s becoming more and more clear that it will happen in June,” Muehlbronner said. “That’s a positive. A long period of uncertainty, in general, is not good.”

She added that the proposals from European Council president Donald Tusk “might never be enough” for all members of David Cameron’s largely eurosceptic Conservative party but should “increase the chances of the ‘In’ campaign”.

She repeated warnings by the credit rating agency that leaving the EU would be bad for Britain’s economy and currency, potentially hampering inward investment needed to plug the current account deficit and leading to a rating downgrade.

“If there was a vote to leave the EU, we might assign a negative outlook to the rating and use that time (12-18 months) to assess the economic prospects before deciding on the rating,” Muehlbronner said.

    “That might not be long enough to have perfect clarity on policies and arrangements that are put in place, but it should be relatively clear what direction the UK economy is taking.”

Moody’s and rival ratings agency Fitch Ratings each cut Britain by one notch from the highest triple-A grade in 2013 because of the government’s failure to reduce the budget deficit as quickly as planned.

Standard & Poor‘s, which still rates Britain as AAA, said in October that the rating could be cut by as much as two notches if it left the EU, which the country joined in 1973.

Muehlbronner said that a vote to leave, known as Brexit, would probably have a negative impact on sterling “which could lead to a reassessment of foreign investors on their willingness to invest in the UK”.

But she added it was difficult to quantify the potential impact on sterling, growth and interest rates because the political, economic and trade arrangements that would follow are simply unknowable at this stage.

Others, such as economists at French bank Societe Generale, haven’t been so cautious. They estimate that Brexit would knock a “very significant” 0.5-1.0 percentage points on average per annum off UK economic growth over a decade.

“The growth outlook has darkened a little bit,” Muehlbronner said. “But we still expect 2 percent or so this year, maybe a bit higher next year and further out.”

Reporting by Jamie McGeever; Editing by Catherine Evans

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