British banks will escape much harm, but a ‘no deal’ outcome for the UK, in its Brexit talks with the EU, would “significantly” damage the British economy and be a “dramatic” hit for its airports, aviation, and ports, in particular, Moody’s Investors Service said.
The report from the credit-ratings firm focuses on the implications for debt-raising of UK-based firms. Though it believes the UK and the EU will strike a deal, there remains a “substantial risk” that the UK would leave the EU in two years’ time, outside both the single market and the customs union.
A ‘no deal’ would mean the British economy would slow, or enter into an “outright recession”, and unemployment would increase, but some industries would fare worse than others. “Weaker macro-economic out-turns — including slower growth or outright recession, higher unemployment and inflation, and lower real wages — would clearly weigh on the credit quality of a wide range of UK issuers,” Moody’s said.
“Similarly, restrictions on UK immigration, that may follow a ‘no deal’ scenario, could exacerbate skill shortages in certain sectors. One key economic adjustment channel to these negative shocks would be the exchange rate, which would likely fall sharply, as it did following the June, 2016 EU referendum. But apart from those economic consequences, a number of sectors would face specific challenges,” it said.
Perhaps surprisingly, Moody’s says that financial services in the UK would be little-affected, because those banks most exposed to Brexit have already made plans to protect their so-called pass-porting rights by setting up alternative bases in other cities within the EU.
The wider UK financial industry would face only limited additional costs, it believes.
Facing “extreme outcomes” would be airports, aviation, and ports, because, outside the EU, they would lose the advantages of existing trade agreements, under a ‘no deal’ outcome.
British exporters would face disruption at ports — the EU is the UK’s single- largest export market.
Importers of clothes may, however, face only limited effects, because most British clothing is imported from countries outside the EU.
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