UK cred­it­wor­thi­ness un­der pres­sure

Financial Mirror (Cyprus) - - FRONT PAGE -

The UK’s cred­it­wor­thi­ness is un­der down­ward pres­sure fol­low­ing the de­ci­sion to leave the Euro­pean Union, ac­cord­ing to Moody’s In­vestors Ser­vice re­port just pub­lished. Un­cer­tainty sur­round­ing the UK’s with­drawal from the EU will likely af­fect eco­nomic growth and weaken gov­ern­ment fi­nances, the rat­ing agency added. How­ever, the UK also re­tains im­por­tant strengths, in­clud­ing its large econ­omy and solid in­sti­tu­tional strength.

“The econ­omy will slow sig­nif­i­cantly in the near term, and medium-term growth prospects could be ma­te­ri­ally weaker if the UK failed to reach a new trade ar­range­ment with the EU that al­lows it rea­son­ably good ac­cess to the Euro­pean Sin­gle Mar­ket. Given the com­plex­ity and sheer amount of eco­nomic pol­icy de­ci­sions in the com­ing years, the UK’s in­sti­tu­tions will be tested,” Kathrin Muehlbron­ner, a Se­nior Vice Pres­i­dent at Moody’s.

Moody’s fore­casts real GDP growth of 1.5% and close to 1% for 2016 and 2017, re­spec­tively. The risks to these fore­casts are squarely to the down­side, with a much lower growth rate for 2017 a dis­tinct pos­si­bil­ity.

In line with re­cent an­nounce­ments from the gov­ern­ment, Moody’s ex­pects fis­cal pol­icy to be loos­ened this year and next, com­pared to ear­lier ex­pec­ta­tions of con­tin­u­ing fis­cal re­straint. The UK bud­get deficit is likely to re­main higher than ex­pected be­fore the EU vote, at 3.6% of GDP in 2016 and 3.5% of GDP in 2017.

The pub­lic debt ra­tio is ex­pected to stag­nate close to cur­rent lev­els of around 90% of GDP at best. As­set sales this year are un­likely to ma­te­ri­alise now, while the March 2016 bud­get had as­sumed as­set sales of more than GBP 20 bil­lion.

But the UK also re­tains im­por­tant credit strengths that are un­af­fected by the exit-re­lated un­cer­tain­ties, the rat­ing agency said. The UK is a large, di­ver­si­fied and com­pet­i­tive econ­omy, with high wealth lev­els and flex­i­ble labour and prod­uct mar­kets.

Im­por­tant as­pects of in­sti­tu­tional strength, such as a strong and longestab­lished le­gal sys­tem, are also un­af­fected. The cred­i­bil­ity of the Bank of Eng­land should en­sure fi­nan­cial sta­bil­ity, while ex­change rate flex­i­bil­ity pro­vides some sup­port for ex­ports and the UK’s ex­ter­nal sta­bil­ity.

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.